Financial Ratios and Basics of Time Value of Money (TVM)
*Complete the problems from Module 3 and Module 4 in an Excel spreadsheet. Be sure to show your work to receive credit, no hard keys.
Problem 4-1: Compound Interest
To what amount will the following investments accumulate?
a. 5,000 SAR invested for 10 years at 10% compounded annually
b. 8,000 SAR invested for 7 years at 8% compounded annually
c. 775 SAR invested for 12 years at 12% compounded annually
d. 21,000 SAR invested for 5 years at 5% compounded annually
Problem 4-2: Future value calculations
You would like to make a single investment and have 2 million SAR at the time your retirement in 35 years. You have found a mutual fund that will earn 4 percent annually. How much will you need to invest today? If you were a finance major and learned how to earn a 14% annual return, how much would you have to invest today?
Problem 4-3: Present value calculations
What is the present value of the following future amounts?
a. 800 SAR to be received 10 years from now discounted back to the present at 10%.
b. 300 SAR to be received 5 years from now discounted back to the present at 5%.
c. 1,000 SAR to be received 8 years from now discounted back to the present at 3%.
d. 1,000 SAR to be received 8 years from now discounted back to the present at 20%.
Problem 4-4 Financial Ratios
The Balance Sheet and the Income Statement for Morris Manufacturing Corporation are as follows:
DATA (All amounts in SAR unless otherwise indicated, all sales are on credit and no hard keys.)
Morris Corporation Balance Sheet
2019
Cash
500
Accounts receivable
2,000
Inventories
1,000
Other current assets
3,500
Net fixed assets
4,500
Total assets
8,000
Accounts payable
1,100
Accrued expenses
600
Short-term notes payable
300
Current liabilities
2,000
Long-term debt
2,000
Owners equity
4,000
Total liabilities and equity
8,000
Morris Corporation Income Statement
2019
Sales (all credit)
8,000
Cost of goods sold
-3,300
Gross profits
4,700
Operating expenses (includes 500 depreciation)
-3,000
Operating profits
1,700
Interest expense
-367
Earnings before taxes
1,333
Income taxes
-280
Net Income
1,053
Calculate the following ratios:
- Current ratio
- Times interest earned
- Inventory control
- Total asset turnover
- Operating profit margin
- Operating return on assets
- Debt ratio
- Average collection period
- Fixed-asset turnover
- Return on equity
Problem 4-5: Present value of annuity calculations
What is the present value of a 10-year annuity that pays 2,500 SAR, given a 7% discount rate?
Problem 4-6: Future value of annuity calculations
In 10 years, you are planning on retiring and buying a house. The house you are looking at currently costs 100,000 SAR and is expected to increase in value each year at a rate of 5 percent annually. Assuming you can earn 10 percent annually on your investments, how much must you invest at the end of each of the next 10 years to be able to buy your dream home when you retire?
Problem 4-7: Loan Amortization
A man purchased a new house for 80,000 SAR. He paid 20,000 SAR down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments plus 9% compound interest on the unpaid balance. What will these equal payments be?
Requirements: EXCEL
