FIN 500 SEU Working capital Paper

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Business Finance

FIN 500

Saudi electronic university

FIN

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Working capital and Characteristics of Bonds

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 attached file.

Complete the problems in an Excel spreadsheet. Be sure to show your work to receive credit. You should get all results from Excel formula.

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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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Explanation & Answer

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Problem 9-1:
Chapter15
Cash Conversion Cycle
Given the following information: (Amounts in 000's SAR)
20X1
20X2
20X3
Sales – net
4.250
5.314
7.877
Cost of goods sold
2.975
3.720
5.514
Accounts receivable
618
799
1.091
Inventories
332
445
639
Accounts payable
425
670
704
Calculate for each year:
(1) Days sales outstanding
(2) Days of sales in inventory
(3) Days payable outstanding
(4) Cash conversion cycle

20X4
10.942
7.659
1.348
382
1.555

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
3.30...


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