Financial Ratios Review, Exams of Finance

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FNCE 370 Overview of Corporate Finance Assignment 1 Athabasca University

FNCE 370 Overview of Corporate Finance Assignment 1

Athabasca University

Assignment 1 is worth 5% of your final mark. Complete and submit Assignment 1 after you complete

Lesson 1.

Save this assignment file and use it to record your responses to all three parts of this assignment.

Answer all three parts in one file. Follow the instructions on the Assignment 1 page of the course

website for submitting your completed assignment file.

This assignment consists of three parts.

1. Financial calculator exercises. You will become familiar with some basic corporate finance

concepts and your calculator to develop calculation techniques that will help you complete

future assignments with fewer errors and better understanding. In some cases, you will be

finding answers without completely understanding all the terms (e.g., PV, PMT, FV, IRR). You

will study these terms later in the course. For now, concentrate on the keystrokes and the

sequences.

2. Financial statements review: Preparing a Statement of Comprehensive Income and a

Statement of Financial Position. You will use the information given to prepare these

common financial statements.

3. Financial ratios review. You will use the information given to calculate common financial

ratios. It is assumed you are already familiar with financial statements and financial ratios

through your prerequisite courses.

If you have any questions about this assignment and how to complete it, contact the Student Support

Centre.

Assignment 1: Grading Summary

Part Marks available Marks obtained

Total 100

A B C D E F

Examples Check Answer Q Answer the questions in this column Record your answer in this column PRELIMINARIES SCIENTIFIC FUNCTIONS 1 Chain calculations - to the power of 256 1 (1+0.25)^8 5. (8 x 2)^2 Round to 4 decimal places 2 Calculating natural logs 2.99573227 2 Ln(1^ +^ 0.09)^ 0. Ln(20) Round to 4 decimal places Round to 8 decimal places 3 To the power of 50.118723 3 1.97.3^ 108. 10 1.7^ Round^ to^4 decimal^ places Round to 6 decimal places 4 e to the power of 20.08553692 (^4 1) – e(-0.19)^ 0. e^3 Round^ to^4 decimal^ places Round to 8 decimal places 5 Reciprocals 0.025037792 5 (1/1.09)^ +^ (1/1.09^2 )^ +^ (1/1.09^3 )^ 2. (1/6^3 ) + (1/7^2 ) Round to 8 decimal places Round to 9 decimal places 6 Combinations, to the power of –2024.9844 6 –1,000,000+[200,000(1–0.35)(1–(1/(1.09)

10 ))/0.09]

8 -2^ - 3^4 x 52 Round to 2 decimal places Round to 4 decimal places 7 Combinations, to the power of 6.447419591 7 {(1+(0.09/2))^2 }^ –^1 0. (12^3 )1/4^ Round^ to^9 decimal^ places Round to 9 decimal places 8 Combinations, roots 0.055136195 8 square^ root[(0.7x(0.15–0.1) (^2) )+(0.3x(0.09–0.1) (^2) )]

square root[(0.3x(0.15–0.07)^2 )+(0.7x(0.11–0.07)^2 )] Round to 8 decimal places

Round to 9 decimal places FINANCIAL FUNCTIONS 9 Memory calculations 4613.84 9 Sum of the following 4 parts: 20,698. Sum of the following 3 parts: 1000(1.1)/1. 500 x (1 + 0.1)^2 1000(1.1^2)/1.09^ 700 x (1 + 0.1)^2 x (1 + 0.12)^3 1000(1.1^3)/1.09^ 900 x (1 + 0.1)^2 x (1 + 0.12)^3 x (1 + 0.13)^5 (1000(1.1^3)(1.03)/(0.09–0.03))/(1.09^3) Round to 2 decimal places Round to 2 decimal places 10 Calculating basic loan interest 7.1730 10 Find interest rate 36. N = 20 years, monthly payments (P/Y=12) N = 30 years, quarterly payments Interest rate compounded monthly (C/Y=12) Interest rate compounded quarterly PV = 56, PV = 1,200, PMT = – PMT = –110, FV = 0 FV = 0 Compute annual interest rate Compute annual interest rate (%) Round to 4 decimal places Round to 4 decimal places 11 Calculating basic loan payments –1255.86 11 Find payment - 12,069. N = 20 years, quarterly payments (P/Y=4) N = 30 years, monthly payments Interest rate = 6.5%, compounded quarterly (C/Y=4) Interest rate = 9%, compounded monthly PV = 56, PV = 1,500, FV = 0 FV = 0 Compute PMT Compute PMT

12 Calculating future value 7922.19 12 Find future value 4,423,193. N = 3 years, monthly payments (P/Y=12)

N = 30 years, monthly payments

Interest rate = 6.5%, compounded quarterly (C/Y=4)

Interest rate = 9%, compounded semi-annually

PV = 0

PV = 0

PMT = –

PMT = –

Compute FV Compute FV Round to 2 decimal places Round to 2 decimal places 13 Calculating present value 3768.89 13 Find present value 135,772. N = 20 years, annual payments (P/Y=1)

N = 30 years, monthly payments

Interest rate = 5%, compounded annually (C/Y=1)

Interest rate = 9%, compounded monthly

PMT = 0

PMT = 0

FV = –10,

FV = –2,000,

Compute PV Compute PV Round to 2 decimal places Round to 2 decimal places 14 Ordinary annuity –16,245.70 14 Find payment - 6,908. N = 1.5 years, monthly payments (P/Y=12)

N = 30 years, semi-annual payments

Interest rate = 3.6%, compounded monthly (C/Y=12)

Interest rate = 9%, compounded semi-annually

PV = 0

PV = 0

FV = 300,

FV = –2,000,

Compute PMT Compute PMT Round to 2 decimal places Round to 2 decimal places

15 Annuity due 7.0798 15 Find interest rate in annuity due 11. N = 2 years, monthly payments, at beginning of month (P/Y=12) N = 9 years, monthly payments, BGN Interest rate compounded monthly (P/Y=12) Interest rate compounded monthly PV = 2995 PV = 350, PMT = –145 PMT = – FV = 299.5 FV = –50, Compute I/Y Compute annual interest rate (%) Round to 4 decimal places Round to 4 decimal places

Amortization schedule: second year P1 = 6 P1 = 49 P2 = 17 P2 = 60 2 2 Balance at end of December in 2nd year 86,335.92 22 Balance at end of December in 5th year 372,785. 2 3 Total principal repayment in 2nd year –2615.55 23 Total principal repayment in 5th year - 25,759. 2 4 Total interest payments in 2nd year –4783.16 24 Total interest payments in 5th year - 21,688. Round to 2 decimal places Round to 2 decimal places Amortization schedule: third year 2 5 Balance at end of December in 3rd year 83,574.20 25 Balance at end of December in 13th year 90,125. 2 6 Total principal repayment in 3rd year –2761.72 26 Total principal repayment in 13th year - 38,396. 2 7 Total interest payments in 3rd year –4637.00 27 Total interest payments in 13th year - 9,051. Round to 2 decimal places Round to 2 decimal places Examples 28–31 use the same data Questions 28–31 use the same data 2 8 Calculating payments, interest, and loan balance after a specified payment –3844.57 28 Find mortgage payment - 804. N = 5 years, monthly payment, annuity due N = 30 years, monthly payment (P/Y=12) Interest rate = 2.9%, compounded monthly Interest rate = 8.5%, compounded monthly (C/Y=12) PV = 45, PV = 500,000 FV = 0 FV = 0 Compute PMT Compute PMT Round to 2 decimal places Round to 2 decimal places Amortization schedule: first to 48th payment Amortization schedule after 3 years: same data as Q P1 = 1 P1 = 1 P2 = 48 P2 = 36 2 9 Balance after 48th payment 482,755.41 29 Balance after 3 years of payments 18,785. 3 0 Total principal repayment after 48 payments –17,244.59 30 Total principal repayment after 3 yrs of payments - 26,214. 3 1 Total interest payments after 48 payments –167,294.64 31 Total interest payments after 3 yrs of payments - 2,752. Round to 2 decimal places Round to 2 decimal places

Calculating IRR 17.5006 32 Compute IRR (%) using following data: 28. CF0 = –5000 CF0 = –100, CF1 = 2000 CF1 = 10, CF2 = 2000 CF2 = 30, CF3 = 3000 CF3 = 50, Round to 4 decimal places CF4 = 70, CF5 = 90, Round to 4 decimal places 3 3 Calculating NPV 223.97 33 Compute NPV 49,024. CF0 = –5000 Same cash flows as Q CF1 = 2000 Interest rate = 15% CF2 = 2000 Round to 2 decimal places CF3 = 3000 Interest rate = 15% Round to 2 decimal places

Statement of Financial Position for CanDo Inc.

Assets Liabilities + Equity

• Cost of Goods Solds 362,
• Depreciation 42,
• EBIT 54,
• Interest Paid 38,
• Taxable Income 16,
• Taxes (31%) 5,
• Net Income 11,
• Dividends 4,
• Additions to Retained Earnings 6, - Accts Receivable 174,000 Accounts Payable 117, Current Assets Current Liabilities
  • Cash+Cash Equiv. 134,000 Short Term Debt 112, - Inventory 144,000 Total Current Liabilities 229,
• Total Current Assets 452,000 Long Term Debt 1,856,
• Fixed Assets Total Liabilties 2,085,
• Total Assets 3,345,000 Common Stock 1,090, Net Fixed Assets 2,893,000 Shareholders’ Equity - 1,000,000 Shares @ 0.15 150, - Retained Earnings 20, - Total Liabilities + Equity 3,345,
• 1. A. $452,

B. $229,

C. NWC = Current Assets – Current Liabilities

NWC = 452,000 – 229,

NWC = $223,

D. $20,

E. Owners Equity = Assets – Liabilities

F. $3,345,

G. EBDIT = Sales – COFS

H. $54,

I. $6,

Part 3: Financial Ratios Review (32 marks)

The following table presents the data for CanDo Inc. as of December 31, 2018:

Accounts payable $126,

Accounts receivable $165,

Cash and cash equivalents $106,

CoGS $271,

Common stock $1,090,

Depreciation $42,

Dividend payout ratio 40%

Interest paid $38,

Inventory $175,

Long-term debt $1,856,

Net fixed assets $2,932,

Sales $440,

Short-term debt $142,

Tax rate 31%

Calculate the following financial ratios for CanDo Inc. in the fiscal year of 2019 (round all answers to six

decimal places):

a. Current ratio (1 mark)

b. Quick ratio (1 mark)

c. Cash ratio (1 mark)

d. Net working capital ratio (1 mark)

e. Interval measure (1 mark)

f. Total debt ratio (1 mark)

g. Debt-equity ratio (1 mark)

h. Equity multiplier (1 mark)

i. Long-term debt ratio (1 mark)

j. Times interest earned (1 mark)

k. Cash coverage ratio (1 mark)

l. Inventory turnover (using avg. inventory from 2018 & 2019) (2 marks)

m. Days’ sales in inventory (1 mark)

n. Receivables turnover (using avg. accounts receivable from 2018 & 2019) (2 marks)

y) Market-to-Book Ratio:

Market Value per Share = 0.

Book Value per Share = Total Equity/Number of Shares Outstanding

Market-to-Book Ratio = 0.15/1.253128 = 0.