SEU_FIN500_CTAssignment_Mod09.docx
Module 9 Critical Thinking Assignment
Working Capital and Bonds
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Problem 9-1:
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Chapter15
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Cash Conversion Cycle
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Given the following information: (Amounts in 000's SAR)
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20X1
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20X2
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20X3
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20X4
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Sales - net
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4,250
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5,314
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7,877
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10,942
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Cost of goods sold
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2,975
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3,720
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5,514
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7,659
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Accounts receivable
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618
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799
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1,091
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1,348
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Inventories
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332
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445
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639
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382
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Accounts payable
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425
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670
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704
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1,555
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Calculate for each year:
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(1) Days sales outstanding
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(2) Days of sales in inventory
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(3) Days payable outstanding
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(4) Cash conversion cycle
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Problem 9-2:
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Chapter 15
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Short-term vs. long-term financing
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Medina Hardware operates many hardware stores and is planning to expand to other areas.
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The firm has historically reinvested earnings and borrowed using short-term borrowing.
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Recent financial results are as follows: (All amounts in 000's SAR)
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20X1
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20X2
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20X3
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20X4
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Current assets
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900
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1,200
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1,500
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1,800
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Fixed assets
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2,400
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2,600
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2,800
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3,000
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Total assets
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3,300
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3,800
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4,300
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4,800
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Current liabilities
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400
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800
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1,200
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1,600
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Long-term liabilities
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900
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900
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900
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900
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Owner's equity
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2,000
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2,100
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2,200
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2,300
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Total liabilities & equity
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3,300
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3,800
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4,300
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4,800
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(1) Prepare new balance sheet information assuming current liabilities remain unchanged
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at 400 SAR each year and the 400 SAR increase in debt is added to long-term liabilities.
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(2) Calculate the current ratio and debt ratio for each year under the first scenario.
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(3) Calculate the current ratio and debt ratio for each year under your revised
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scenario with the additional debt added to long-term liabilities.
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(4) Explain which of the two alternatives is riskier and why.
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Problem 9-3: Cost of trade credit
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Chapter 15
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Using a 360-day year, compute the cost of trade credit for each of the following:
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(1) 1/10, net 30
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(2) 2/15, net 45
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(3) 3/15, net 60
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Problem 9-4: Bond valuation
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Chapter 7
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Calculate the value of the bonds in each situation below:
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Current
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Interest
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Par/Face
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Coupon
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Years to
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Interest
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Paid
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Value (SAR)
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Rate
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Maturity
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Rates
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Annually
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10,000
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6%
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10
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8%
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Semi-annually
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10,000
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6%
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10
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7%
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Annually
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10,000
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4%
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15
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5%
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Semi-annually
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10,000
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8%
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20
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10%
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Semi-annually
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10,000
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8%
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20
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6%
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Problem 9-5: Bond interest rates
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Chapter 7
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What is the current annual interest rate on bonds that sell for the following?
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Current
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Par/Face
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Coupon
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Years to
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Price (SAR)
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Value (SAR)
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Rate
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Maturity
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12,842
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10,000
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6%
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10
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7,850
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10,000
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4%
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15
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10,000
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10,000
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8%
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20
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aaa2019
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