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FNCE 370v9: Assignment 1 Assignment 1 is worth 5% of your final mark. Complete and submit Assignment 1 after you complete Lesson 1. Save this assignment file and use it to record your responses to all three parts of this assignment. Answer all three parts in one file. Follow the instructions on the Assignment 1 page of the course website for submitting your completed assignment file. This assignment consists of three parts. 1. Financial calculator exercises. You will become familiar with some basic corporate finance concepts and your calculator to develop calculation techniques that will help you complete future assignments with fewer errors and better understanding. In some cases, you will be finding answers without completely understanding all the terms (e.g., PV, PMT, FV, IRR). You will study these terms later in the course. For now, concentrate on the keystrokes and the sequences. 2. Preparing a statement of comprehensive income and a statement of financial position. You will use the information given to prepare these common financial statements. 3. Calculating common financial ratios. You will use the information given to calculate common financial ratios. It is assumed you are already familiar with financial statements and financial ratios through your prerequisite courses. If you have any questions about this assignment and how to complete it, contact the Student Support Centre. Assignment 1: Grading Summary Part Marks available 1 33 2 35 3 32 Total 100 Marks obtained Part 1: Financial Calculator Exercises (33 marks) FNCE 370v9 1 Jan. 2017 The table on the next pages contains practice examples and the questions for Assignment 1: Part 1. (For a detailed description of each column in this table, see \"How do I Read the Table?\" below.) 1. Work through each example in Column B on your financial calculator. 2. Check your answer with the one provided (Column C). 3. Look to the right side of the yellow column-divider, and work through the corresponding assignment question (Column E). Each numbered practice example corresponds to the same numbered assignment question (e.g., practice example 1: \"Chain calculations - to the power of\" with the calculation of (8 x 2)2 corresponds to assignment question 1 where you calculate (1+0.25)8). If you can do the practice example, you should be able to do the corresponding assignment question. 4. Pay careful attention when reading questions that include multiple sets of brackets (e.g., assignment question 6). These can be confusing, so work through them carefully. 5. To record your solutions, put your answer in Column F, on the same row as the assignment question. See example for Question 1: (1+0.25)8). Don't be alarmed by the number of questions! You will likely be able to complete the work more quickly than you think. There are 33 questions in Part 1. Each question is worth 1% of the total marks for Assignment 1. How Do I Read the Table? Start from the far left-hand column and read across each row. We'll refer to Example #10 in our descriptions below. Column A: number of the task (e.g., 10) Column B: title of the task (e.g., Calculating basic loan interest). Below this title is the description and data for the practice example. (In Example 10; N = 20 years, monthly payments (P/Y=12); Interest rate comp. monthly (C/Y=12); ...) As in Example 10, many of the practice examples and assignment questions take up several rows. Column C: check answer to the practice example. (In Example 10: 7.172951345.) Column D: numbering of the assignment questions (e.g., 18). Column E: description and data for the tasks in the assignment question. (In Question 10: Find annual interest rate; N = 30 years, quarterly payments; Interest rate compounded quarterly; ...) Column F: write down your answer in this column. (See example provided for Question 1.) FNCE 370v9 2 Jan. 2017 A B C D E F Examples Check Answer Q Answer the questions in this column Write down your answer in this column 256 1 (1+0.05)25 3.3864 PRELIMINARIES SCIENTIFIC FUNCTIONS 1 Chain calculations - to the power of (8 x 2)2 2 Round to 4 decimal places Calculating natural logs 2.99573227 2 Ln(20) ln(1 + 0.05) Round to 4 decimal places Round to 8 decimal places 3 To the power of 10 50.118723 3 1.57.3 Round to 4 decimal places 1.7 Round to 6 decimal places 4 e to the power of e 20.08553692 4 1 - e(-0.11) Round to 4 decimal places 3 Round to 8 decimal places 5 Reciprocals 0.025037792 5 (1/63) + (1/72) (1/1.06) + (1/1.062) + (1/1.063) Round to 8 decimal places Round to 9 decimal places 6 Combinations, to the power of -2024.9844 6 8-2 - 34 x 52 -1000000+[200000(1-0.35)(1-(1/(1.06)10))/0.06] Round to 2 decimal places Round to 4 decimal places 7 Combinations, to the power of 6.447419591 7 (123)1/4 {[(1+(0.06/2))2](1/12)} - 1 Round to 9 decimal places Round to 9 decimal places 8 Combinations, roots FNCE 370v9 0.055136195 8 3 square root[(0.7x(0.15-0.1)2)+(0.3x(0.06-0.1)2)] Jan. 2017 square root[(0.3x(0.15-0.07)2)+(0.7x(0.11-0.07)2)] Round to 8 decimal places Round to 9 decimal places FINANCIAL FUNCTIONS 9 Memory calculations 4613.84 9 Sum of the following 3 parts: 1000(1.06)/1.09 500 x (1 + 0.1)2 1000(1.06^2)/1.09^2 700 x (1 + 0.1)2 x (1 + 0.12)3 900 x (1 + 0.1) x (1 + 0.12) x (1 + 0.13) 2 3 1000(1.06^3)/1.09^3 (1000(1.06^3)(1.03)/(0.09-0.03))/(1.09^3) 5 Round to 2 decimal places 10 11 Sum of following 4 parts Calculating basic loan interest Round to 2 decimal places 7.1730 10 Find interest rate N = 20 years, monthly payments (P/Y=12) N = 30 years, quarterly payments Interest rate compounded monthly (C/Y=12) Interest rate compounded quarterly PV = 56000 PV = 1,500,000 PMT = -440 PMT = -110,000 FV = 0 FV = 0 Compute annual interest rate Compute annual interest rate Round to 4 decimal places Round to 4 decimal places Calculating basic loan payments -1255.86 11 Find payment N = 20 years, quarterly payments (P/Y=4) N = 30 years, monthly payments Interest rate = 6.5% compounded quarterly (C/Y=4) Interest rate = 6%, compounded monthly PV = 56000 PV = 1,500,000 FV = 0 FV = 0 Compute PMT Compute PMT Round to 2 decimal places Round to 2 decimal places FNCE 370v9 4 Jan. 2017 12 13 14 15 Calculating future value 7922.19 12 Find future value N = 3 years, monthly payments (P/Y=12) N = 30 years, monthly payments Interest rate = 6.5%, compounded quarterly (C/Y=4) Interest rate = 6%, compounded semi-annually PV = 0 PV = 0 PMT = -200 PMT = -2500 Compute FV Compute FV Round to 2 decimal places Round to 2 decimal places Calculating present value 3768.89 13 Find present value N = 20 year, annual payments (P/Y=1) N = 30 year, monthly payments Interest rate = 5%, compounded annually (C/Y=1) Interest rate = 6%, compounded monthly PMT = 0 PMT = 0 FV = -10000 FV = -2,000,000 Compute PV Compute PV Round to 2 decimal places Round to 2 decimal places Ordinary annuity -16245.70 14 Find payment N = 1.5 years, monthly payments (P/Y=12) N = 30 years, semiannual payments Interest rate = 3.6%, compounded monthly (C/Y=12) Interest rate = 6%, compounded semi-annually PV = 0 PV = 0 FV = 300000 FV = -2,000,000 Compute PMT Compute PMT Round to 2 decimal places Round to 2 decimal places Annuity due 7.0798 15 Find interest rate in Annuity Due N = 2 years, monthly payments, at beginning of month (P/Y=12) N = 10 years, monthly payments, BGN Interest rate compounded monthly (P/Y=12) Interest rate compounded monthly PV = 2995 PV = 350,000 PMT = -145 PMT = -5000 FV = 299.5 FV = -50000 Compute I/Y Compute annual interest rate Round to 4 decimal places Round to 4 decimal places FNCE 370v9 5 Jan. 2017 1 6 Calculating PV (annuity due) N = 34 months, monthly payments (P/Y=12) 1 7 1 8 16 6279.95 Find present value in annuity due N = 10 years, monthly payments Interest rate = 18%, compounded monthly (C/Y=12) Interest rate = 6%, compounded monthly PMT = -200 PMT = -1000(6%/12) FV = -1500 FV = -1000 Compute PV Compute PV Round to 2 decimal places Round to 2 decimal places Calculating PV (ordinary annuity) 146558.92 17 Find present value in ordinary annuity N = 25 years, monthly payments, at end of month (P/Y=12) N = 30 years, monthly payments Interest rate = 5.5%, compounded monthly (C/Y=12) Interest rate = 6%, compounded monthly PMT = -900 PMT = 1500 FV = 0 FV = 0 Compute PV Compute PV Round to 2 decimal places Round to 2 decimal places Examples 18-27 use the same data Questions 18-27 use the same data Calculating mortgage payments and -616.56 18 generating an amortization schedule Mortgage - find payment N = 20 years, monthly payments, starts at end of August (P/Y=12) N = 20 years, monthly payments, starts at end of January Interest rate = 5%, compounded monthly Interest rate = 5.45%, compounded monthly (C/Y=12) PV = 500,000 PV = 90000 FV = 0 FV = 0 Compute payment PMT Compute PMT Round to 2 decimal places Round to 2 decimal places Amortization schedule - first five months (August - December) P1 = 1 P1 = 1, P2 = 5 1 9 2 0 2 1 P2 = 12 Balance at end of December 88951.47 19 Balance at end of December in first year Total principal repayment first 5 months -1048.53 20 Total principal repayment at end of first year Total interest payments in first 5 months -2034.27 21 Total interest payments at end of first year FNCE 370v9 6 Jan. 2017 Round to 2 decimal places Round to 2 decimal places Amortization schedule - second year P1 = 6 P1 = 49 P2 = 17 2 2 2 3 2 4 P2 = 60 Balance at end of December in 2nd year 86335.92 22 Balance at end of December in 5th year Total principal repayment in 2nd year -2615.55 23 Total principal repayment in 5th year Total interest payments in 2nd year -4783.16 24 Total interest payments in 5th year Round to 2 decimal places Round to 2 decimal places Amortization schedule - third year 2 5 2 6 2 7 2 8 Balance at end of December in 3rd year 83574.20 25 Balance at end of December in 19th year Total principal repayment in 3rd year -2761.72 26 Total Principal Repayment in 19th year Total interest payments in 3rd year -4637.00 27 Total Interest payments in 19th year Round to 2 decimal places Round to 2 decimal places Examples 28-31 use the same data Questions 28 - 31 use the same data Calculating payments, interest, and loan -3844.57 28 Find Mortgage payment balance after a specified payment N = 30 years, monthly payment, annuity due N = 30 years, monthly payment (P/Y=12) Interest rate = 3.9%, compounded monthly Interest rate = 8.5%, compounded monthly (C/Y=12) PV = 350000 PV = 500000 FV = 0 FV = 0 Compute PMT Compute PMT Round to 2 decimal places Round to 2 decimal places Amortization schedule - first to 48th payment Amortization schedule after 10 years - Same data as Q28 P1 = 1 P1 = 1 P2 = 48 2 9 3 0 P2 = 120 Balance after 48th payment 482755.41 29 Balance after 10 years of payments Total principal repayment after 48 payments -17244.59 30 Tot. principal repayment after 10 yrs of payments FNCE 370v9 7 Jan. 2017 3 1 Total interest payments after 48 payments -167294.64 31 Round to 2 decimal places 3 2 Calculating IRR Tot. interest payments after 10 yrs of payments Round to 2 decimal places 17.5006 32 Compute IRR using following data: CF0 = -5000 CF0=-100000 CF1 = 2000 CF1=50000 CF2 = 2000 CF2=40000 CF3 = 3000 CF3=30000 Round to 4 decimal places CF4=20000 CF5=10000 Round to 4 decimal places 3 3 Calculating NPV 223.97 33 Compute NPV CF0 = -5000 Same cash flows as Q32 CF1 = 2000 Interest rate = 11% CF2 = 2000 Round to 2 decimal places CF3 = 3000 Interest rate = 15% Round to 2 decimal places FNCE 370v9 8 Jan. 2017 Part 2: Financial Statements Review (35 marks) 1. Build the statement of comprehensive income and statement of financial position for CanDo Inc. based on the information given below, as of December 31, 2016. Round all numbers to the nearest integer. Accounts payable Accounts receivable Cash and cash equivalents CoGS Common stock Depreciation Dividend payout ratio Interest paid Inventory Long-term debt Net fixed assets Sales Short-term debt Tax rate Number of shares Price per share 2. $172,000 $195,000 $106,000 $251,300 $1,231,000 $42,000 40% $66,600 $121,000 $1,332,000 $2,889,000 $468,000 $377,000 31% 1,000,000 $0.50 Obtain the following values from the statement of comprehensive income and statement of financial position: a. b. c. d. e. f. g. h. i. Total current assets Total current liabilities Retained earnings Total owners' equity Total assets Earnings before depreciation, interest, and taxes (EBDIT) Earnings before interest and taxes (EBIT) Dividends Addition to retained earnings Part 3: Financial Ratios Review (32 marks) The following table presents the data for CanDo Inc. in as of December 31, 2015: FNCE 370v9 9 Jan. 2017 Accounts payable Accounts receivable Cash and cash equivalents CoGS Common stock Depreciation Dividend payout ratio Interest paid Inventory Long-term debt Net fixed assets Sales Short-term debt Tax rate 1. $205,000 $108,000 $133,000 $219,200 $1,231,000 $42,000 40% $66,600 $151,000 $1,332,000 $2,931,000 $406,000 $400,753 31% Calculate the following financial ratios for CanDo Inc. in the fiscal year of 2016: a. b. c. d. e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. t. u. v. w. x. y. Current ratio Quick ratio Cash ratio Net working capital ratio Interval measure Total debt ratio Debt-equity ratio Equity multiplier Long-term debt ratio Times interest earned Cash coverage ratio Inventory turnover (using average inventory from 2015 and 2016) Days' sales in inventory Receivables turnover (using average accounts receivable from 2015 and 2016) Days' sales in receivables Payables turnover (using average accounts payable from 2015 and 2016) Days' sales in payables NWC turnover Fixed assets turnover Total asset turnover Profit margin Return on assets (ROA) Return on equity (ROE) Price-earnings (P/E) ratio Market-to-book ratio FNCE 370v9 10 Jan. 2017