• April 22nd, 2016

The Time Value of Money and Financial Statement Analysis

Paper, Order, or Assignment Requirements

Assignment 1: Case Study

Introduction to Financial Accounting

Assignment Overview

  1. Solving Present Value and Future Value Problems

You are the CFO (Chief Financial Officer) of ABC Golf Equipment Corporation, a small company that sells golf equipment. Mr. Hillbrandt, the new CEO (Chief Executive Officer) has a marketing background and is trying to learn more about the financial side of running a business. He wants your help and asks for an introduction to the concept of time value of money.

 

The value of a typical corporate bond is the present value of an annuity plus the present value of a lump sum. Thus, if an individual does not understand how to calculate the present value of a lump sum or the present value of an annuity, it is difficult to determine the value of a typical corporate bond. Thus, in this case assignment, you will work through a variety of time value of money problems to illustrate the idea to the CEO.

 

  1. The following websites include a number of formulae and financial calculators, including Present Value, Future Value, and Annuity:
  2. Financial calculators. (2015).Calculator Soup. Retrieved fromhttp://www.calculatorsoup.com/calculators/financial/

 

  1. Carther, S. (2015). Calculating the present and future value of annuities. Retrieved from http://www.investopedia.com/articles/03/101503.asp

 

  1. Required:
  • Compute and show your work for the following scenarios: 
  1. Calculate the present value of the following lump sums:
  2. $100,000 to be received five years from now with a 5% annual interest rate
  3. $200,000 to be received 10 years from now with a 10% annual interest rate
  4. Calculate the future value of the following lump sums:
  5. $100,000 if invested for five years at a 5% annual interest rate
  6. $200,000 if invested for 10 years at a 10% annual interest rate
  7. Calculate the present value of these ordinary annuities:
  8. $100,000 to be received each year for five years with a 5% annual interest rate
  9. $200,000 to be received each year for 10 years with a 10% annual interest rate
  10. Calculate the future value of these ordinary annuities:
  11. $100,000 if invested each year for five years at a 5% annual interest rate
  12. $200,000 if invested each year for 10 years at a 10% annual interest rate
  13. Calculate the present value of these perpetuities:
  14. $100,000 to be received each year forever with a 5% annual interest rate
  15. $200,000 to be received each year forever with a 10% annual interest rate

 

  • Computations (use Excel).
  1. Show the computations as required above.
  2. Summarize the results in an easy to read table at the top of the spreadsheet or on a clearly labeled separate tab.

Assignment 2: Session Project: Conducting Financial Ratio Analysis  

Coca-Cola is a publicly traded U.S. company that has paid a dividend. Use last three years report and conduct a financial ratio analysis of the following;

 

  1. Calculate all the following ratios for the company for the past three years and compare them to the appropriate industry benchmarks: (use Excel)

A: Liquidity ratios:            B: Asset Management ratios:           C: Debt Management ratios:

Current                                  Inventory turnover                              EBITDA coverage

Quick                                    Total assets turnover                           Times-interest-earned

Fixed assets turnover                          Total debt to total assets

Days sales outstanding

 

D: Profitability ratios:              E: Market Value ratios:

Return on common equity                       Market/book

Return on total assets                   Price/earnings

Basic earning power                     Price/cash flow

Profit margin on sales

 

  1. Create a table that contains the ratios for the various years. Then analyze the information.  Look at the trends in the ratios and comment on how they compare to the industry benchmarks and answer following questions; (use Word)
  • Which ratios are strong?
  • Which ratios need improvement?
  • If you were a stock investor, would you buy the company’s common stock?  Why or why not?
  • If you were a bond investor, would you buy the company’s bonds?  Why or why not?

 

Assignment 3: The Course Discussions  

 

The Euro zone has some countries with severe debt problems: Portugal, Ireland, Italy, Greece and Spain … sometimes known as PIIGS. These Euro countries are looking for and have been assured of a “bail-out” process so that no one defaults on their debt. What do you now think is likely to happen to the relative value of the euro?  ( one page and also provide citations and references)

 

Required:

  1. Please note that in course you must show and demonstrate your ability to provide reasoning for your response to discussion questions.
  2. Provide citations to support your argument and references on a separate page. (All the sources that you listed in the references section must be cited in the paper.) Use APA format to provide citations and references.

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