FIN 500 Saudi Electronic University Discount Cash Flow Valuation Discussion

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

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