Module- Case: THE TIME VALUE OF MONEY AND FINANCIAL STATEMENT ANALYSIS
Case Assignment
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.
The following websites include a number of formulae and financial calculators, including Present Value, Future Value, and Annuity:
Financial calculators. (2015). Calculator Soup. Retrieved from https://www.calculatorsoup.com/calculators/financial/
Carther, S. (2015). Calculating the present and future value of annuities. Investopedia.
Required:
Compute and show your work for the following scenarios:
• Calculate the present value of the following lump sums:
o $100,000 to be received five years from now with a 5% annual interest rate
o $200,000 to be received 10 years from now with a 10% annual interest rate
• Calculate the future value of the following lump sums:
o $100,000 if invested for five years at a 5% annual interest rate
o $200,000 if invested for 10 years at a 10% annual interest rate
• Calculate the present value of these ordinary annuities:
o $100,000 to be received each year for five years with a 5% annual interest rate
o $200,000 to be received each year for 10 years with a 10% annual interest rate
• Calculate the future value of these ordinary annuities:
o $100,000 if invested each year for five years at a 5% annual interest rate
o $200,000 if invested each year for 10 years at a 10% annual interest rate
• Calculate the present value of these perpetuities:
o $100,000 to be received each year forever with a 5% annual interest rate
o $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.
Memo (use Word).
Interpret the results from the computations and explain how the information is useful. Write a four or five paragraph memo to the CEO. Start with an introduction and end with a conclusion or recommendation. Each of the four or five paragraphs should have a heading.
Short Essay (use Word).
Do research and write a short essay to comment on the use of bonds by public corporations. The emphasis of the essay could be either
• A discussion of different types of bonds; or
• The use of bonds in different industries.
Start with an introduction and end with a summary or conclusion. Use headings. Don't forget to reference your sources. Maximum length of two pages.
Assignment Expectations
Each submission should include two files: (1) An Excel file; and (2) A Word document. The Word document shows the memo first and short essay last. Assume a knowledgeable business audience and use required format and length. Individuals in business are busy and want information presented in an organized and concise manner.
Module- SLP: THE TIME VALUE OF MONEY AND FINANCIAL STATEMENT ANALYSIS
Conducting Financial Ratio Analysis
Select a publicly traded U.S. company that has paid a dividend for at least the last three years, and conduct a financial ratio analysis. You will be using this company for other assignments in this course; thus, please spend adequate time locating a company. Please consider reviewing https://finance.yahoo.com to locate a company. The company must have data available for you to conduct a financial ratio analysis. It's important to select a company in an industry that has industry ratio numbers. You cannot select a privately held company.
Calculate all the following ratios for the company for the past three years and compare them to the appropriate industry benchmarks:
Liquidity ratios:
• Current
• Quick
Asset Management ratios:
• Inventory turnover
• Total assets turnover
• Fixed assets turnover
• Days sales outstanding
Debt Management ratios:
• EBITDA coverage
• Times-interest-earned
• Total debt to total assets
Profitability ratios:
• Return on common equity
• Return on total assets
• Basic earning power
• Profit margin on sales
Market Value ratios:
• Market/book
• Price/earnings
• Price/cash flow
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. 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?
SLP Assignment Expectations
You are expected to:
• Describe the purpose of the report and provide a conclusion. An introduction and a conclusion are important because many busy individuals in the business environment may only read the first and the last paragraph. If those paragraphs are not interesting, they never read the body of the paper.
• Answer the SLP Assignment question(s) clearly and provide necessary details.
• Write clearly and correctly-that is, no poor sentence structure, no spelling and grammar mistakes, and no run-on sentences.
• 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.
• Type and double-space the paper.
Whenever appropriate, please use Excel to show supporting computations in an appendix, present financial information in tables, and use the data computed to answer follow-up questions. In finance, in addition to being able to write well, it's important to present information in a professional manner and to analyze financial information. This is part of the assignment expectations and will be considered for grading purposes.