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Fin500
Module 04: Critical Thinking
Critical Thinking: Financial Ratios and Time Value of Money
Complete the following problems:
· Problem 4-1: Ratio analysis
· Problem 4-2: Market value ratios
· Problem 4-3: Future value calculations
· Problem 4-4: Present value calculations
· Problem 4-5: Compound annuity calculations
· Problem 4-6: Present value of annuity calculations
· Problem 4-7: Compound interest at non-annual rates
Complete the problems in a Word document. Be sure to show your work to receive credit.
Module 4 Critical Thinking Assignment
Ratio Analysis and Time Value of Money
Problem 4-1
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RATIO ANALYSIS (Chapter 4) |
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The Balance Sheet and the Income Statement for XYZ Manufacturing Corporation are as follows: |
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DATA (All amounts in SAR unless otherwise indicated, and all sales are on credit.) |
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Balance Sheet: |
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Cash |
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400,000 |
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Acct/Rec |
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725,000 |
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Inventories |
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650,000 |
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Current assets |
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1,775,000 |
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Net fixed assets |
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690,000 |
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Total assets |
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2,465,000 |
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Accts/Pay |
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265,000 |
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Accrued expenses |
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310,000 |
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Short-term N/P |
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80,000 |
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Current liabilities |
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655,000 |
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Long-term debt |
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950,000 |
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Owner's equity |
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860,000 |
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Total liabilities and owners’ equity |
2,465,000 |
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Income Statement: |
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Net sales |
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9,550,000 |
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COGS |
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4,866,000 |
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Gross profit |
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4,684,000 |
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Operating expenses |
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2,984,000 |
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Net operating income |
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1,700,000 |
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Interest expense |
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45,000 |
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EBT |
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1,655,000 |
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Income taxes |
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662,000 |
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Net income |
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993,000 |
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Calculate the following ratios: |
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Current ratio = |
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Acid test ratio = |
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Debt ratio = |
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Operating profit margin = |
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Operating return on assets = |
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Return on equity = |
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Times interest earned = |
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Average collection period = |
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Inventory turnover = |
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Fixed asset turnover = |
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Total asset turnover = |
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Problem 4-2 |
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MARKET-VALUE RATIOS (Chapter 4) |
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Jeddah Industries has a price earning ratio of 11X. |
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a. If Jeddah's earnings per share are SAR 42.00, what is the price per share of Jeddah's stock? |
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b. Using the price per share you calculated in part a, determine the price / book ratio if Jeddah's equity-book value is 17.40. |
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Solution |
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a. Price per share |
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b. Price/book ratio |
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Problem 4-3 |
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FUTURE VALUE CALCULATIONS (Chapter 5) |
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To what amount will the following investments accumulate? |
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Annual |
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Amount Invested (SAR) |
Interest |
Years |
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80,000 |
5% |
5 |
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60,000 |
4% |
12 |
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35,500 |
12% |
4 |
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97,000 |
7% |
15 |
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Problem 4-4 |
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PRESENT VALUE CALCULATIONS (Chapter 5) |
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What is the present value of the following future amounts? |
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Annual |
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Future Amount (SAR) |
Interest |
Years |
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900,000 |
5% |
5 |
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478,000 |
4% |
12 |
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279,000 |
12% |
4 |
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440,000 |
7% |
15 |
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Problem 4-5 |
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COMPOUND ANNUITY CALCULATIONS (Chapter 5) |
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What is the accumulated future sum of each of the following Ordinary annuities? |
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Annual |
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Present Amount (SAR) |
Interest |
Years |
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20,000 |
5% |
5 |
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42,000 |
4% |
12 |
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8,000 |
12% |
4 |
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19,500 |
7% |
15 |
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Problem 4-6 |
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PRESENT VALUE OF ANNUITY CALCULATIONS (Chapter 5) |
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What is the present value of each of the following Ordinary annuities? |
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Annual |
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Present Amount (SAR) |
Interest |
Years |
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20,000 |
12% |
5 |
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42,000 |
5% |
12 |
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8,000 |
4% |
4 |
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19,500 |
2% |
5 |
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Problem 4-7 |
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COMPOUND INTEREST AT NON-ANNUAL RATES (Chapter 5) |
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Given the annual interest rates below, and the compounding period indicated, |
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calculate the FUTURE VALUE for each item. |
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Annual |
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Compounding |
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Present Amount (SAR) |
Interest |
Years |
Period |
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20,000 |
6% |
5 |
Semi-annually |
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42,000 |
4% |
12 |
Quarterly |
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8,000 |
12% |
4 |
Monthly |
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