- Complete the following problems:
Problem 9-1: Cash conversion cycle
Problem 9-2: Short term vs. long term financing
Problem 9-3: Cost of trade credit
Problem 9-4: Bond valuation
Problem 9-5: Bond interest rates
You can access the problem details by clicking on Working Capital and Bonds in your course.
Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit. - By submitting this paper, you agree: (1) that you are submitting your paper to be used and stored as part of the SafeAssign™ services in accordance with the Blackboard Privacy Policy; (2) that your institution may use your paper in accordance with your institution’s policies; and (3) that your use of SafeAssign will be without recourse against Blackboard Inc. and its affiliates.
Module 9 Critical Thinking Assignment
Working Capital and Bonds
Problem 9-1: |
Chapter 15 |
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Cash Conversion Cycle |
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Given the following information: (Amounts in 000’s SAR) |
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20 X1 |
20X2 |
20X3 |
20X4 |
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Sales – net |
4,250 |
5,314 |
7,877 |
10 ,942 |
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Cost of goods sold |
2,975 |
3,720 |
5,514 |
7,659 |
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Accounts receivable |
618 |
799 |
1,091 |
1,348 |
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Inventories |
332 |
445 |
639 |
382 |
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Accounts payable |
425 |
670 |
704 |
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: |
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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Current assets |
900 |
1,200 |
1,500 |
1,800 |
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Fixed assets |
2,400 |
2,600 |
2,800 |
3,000 |
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Total assets |
3,300 |
3,800 |
4,300 |
4,800 |
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Current liabilities |
400 |
800 |
1,600 |
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Owner’s equity |
2,000 |
2,100 |
2,200 |
2,300 |
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Total liabilities & equity |
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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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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 |
Chapter 7 |
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Calculate the value of the bonds in each situation below: |
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Current | ||||||||||||||||||||
Interest |
Par/Face |
Coupon |
Years to |
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Paid |
Value (SAR) |
Rate |
Maturity |
Rates |
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Annually |
10,000 |
6% |
10 |
8% |
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Semi-annually |
7% |
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4% |
15 |
5% |
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20 |
10% |
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Problem 9-5: Bond interest rates |
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What is the current annual interest rate on bonds that sell for the following? |
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Price (SAR) |
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12,842 |
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7,850 |
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10,000 |