Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1
1.Morgan Inc for a recent fiscal year is presented below (dollar amounts in millions): Note Reported Book Value, 6/30/2018 Reported Book Value, 6/30/2019 Stated Interest Rate Effective Interest Rate October 1, 2020 1,000 1,000 3.00% 3.14% May 1, 2023 1,000 1,000 2.38% 2.47% December 6, 2028 2,044 1,993 3.13% 3.22% Required: (1) Are the May 1, 2023 notes recorded at a discount or a premium? Why? (2) Assume that Moody's reports that the October 1, 2020 notes were originally rated as Aaa. (a) If Moody's lowers the rating to Aa1 (which signals an increase in risk), what is the effect on the effective interest rate? Would it be higher, lower or the same? (b) If the notes had been secured by collateral, would the effective interest rate have been higher, lower, or the same? (3) (a) Are the December 6, 2028 notes recorded at a discount or a premium? Why? (b) What explains the decrease in the notes from the beginning to the end of the fiscal year?
2.Use the Balance Sheet and Income Statement information to calculate the following ratios in 2018: • Liquidity Ratios current ratio, cash ratio, quick ratio, Interval measure and Net working capital to total assets Long-term solvency, or financial leverage ratios Total debt ratio, Debt-equity ratio, equity multiplier, Long-term debt ratio, Times interest earned ratio and cash coverage ratio Asset management, or turnover, ratios Inventory turnover, days' sales inventory, receivables turnover, days' sales in receivable, net working capital turnover, net fixed asset turnover and total asset turnover Profitability ratios • Profit margin, Return on assets, Return on Equity Market value ratios (Market Price per share = $10, Number of Shares Outstanding = 100m) Price-Earnings ratio, Market-to-book ratio, enterprise value, EBITDA ratio o
Assets 2017 2018 U.S. CORPORATION 2017 and 2018 Balance Sheets ($ in millions Labilities and Owners' Equity 2018 2017 Current liabilities $ 221 Accounts payable $ 232 688 Notes payable 196 555 Total $ 428 $1,464 $ 104 455 $ 266 123 $ 389 Current assets Cash Accounts receivable Inventory Total Fixed assets Net plant and equipment 553 $1,112 Long-term debt $ 408 $ 454 $1,644 $1.709 Owners' equity Common stock and paid-in surplus Retained earnings Total Total liabilities and owners' equity 600 1,320 $1,920 640 1,690 $2,330 Total assets $2,756 $3,173 $2,756 $3,173 U.S. CORPORATION 2018 Income Statement ($ in millons) Net sales Cost of goods sold Depreciation Earnings before interest and taxes Interest paid Taxable income Taxes (21%) Net income $1,509 750 65 $ 694 70 $ 624 131 $ 493 Dividends Addition to retained earnings $123 370.
3. Distinguish between Nostro, Vostro and Loro Account with suitable examples.
Expert Solution
1.
- May 1,2023 notes have been recorded at discount as effective interest rate is higher than the stated interest rate and book value of the notes is same in the year 2019 as compared to 2018, which means amortisation of the discount of the notes has led to increase in high effective interest rate than stated interest rate.
- (2) (a) If Moody's lower the rating to Aa1 which means increase in risk then effective interest rate will increase as lower rating will tend to lower the value of the notes, thereby increase in interest rates or discount on the notes, so effective interest rate will increase.
- (b) if notes had been secured by the colleteral than effective rate will remain the same as the increase in the riskiness of the investment will be offset by the colleteral security.
- (3)(a) December 6,2028 b0nds have been issued at premium as s effective interest rate is higher than the stated interest rate and book value of the notes has decreased in the year 2019 as compared to 2018, which means amortisation of the premium of the notes has led to increase in high effective interest rate than stated interest rate.
- (b) Book value of the notes has decreased in the year 2019 as compared to 2018 due to the reason that premium amount on the notes has been amortized from its book value.
2.
| Liquidity Ratio | 2018 Ratio | |
| 1 | Current Ratio =Current Assets/Current Liabilities | 3.76 |
| 2 | Cash Ratio=Cash/Current Liabilities | 0.57 |
| 3 | Liquid Ratio=(Current asset-Inventory)/Current Liab= | 2.34 |
| 4 | Interval Measures =(Current Assets-Inventory)/Daily Cash operating exp= | |
| Total Cash Operating Exp =COGS for 2018= | 750.00 | |
| Daily Cash Operating Exp in 2018= | 2.05 | |
| Interval Measure = | 442.38 |
| 5 | Net Working Capital to Total Assets | Year 2018 | Year 2017 |
| Current Assets | 1,464 | 1,112 | |
| Current Laib | 389 | 428 | |
| Net Working Capital =Current Asset-Current Liab | 1,075 | 684 | |
| Average Net Working Capital | 879.50 | ||
| Total Assets | 3,173.00 | 2,756 | |
| Average Total Assets | 2,964.50 | ||
| Net Working Capital to Total Assets=Avg Net WC/Avg Assets= | 0.30 |
| Financial Leverage Ratio | Year 2018 | |
| 6 | Total Debt Ratio=Total Liabilities/Total assets | 0.27 |
| 7 | Debt Equity Ratio=Total Liabilities/Total Equity | 0.36 |
| 8 | Equity Multiplier=Total Assets/Total Equity = | 1.36 |
| 9 | Long term debt ratio=Long term debt/Total Assets | 0.14 |
| 10 | Times Interest Earned=EBIT/Interest exp | 9.91 |
| 11 | Cash Coverage Ratio=(EBIT+Depreciation)/Interest Exp= | 10.84 |
| Asset Management Ratio | Year 2018 | Year 2017 | Average |
| Inventory | 555.00 | 553 | 554.00 |
| AR | 688.00 | 455 | 571.50 |
| Net Working Capital | 1,075.00 | 684 | 879.50 |
| Net Fixed Asset | 1,709.00 | 1644 | 1,676.50 |
| Total Asset | 3,173.00 | 2756 | 2,964.50 |
| 12 | Inventory Turnover =COGS/Average Inventory= | 1.35 |
| 13 | Days'sales Inventory=365/Inventory Turnover= | 269.61 |
| 14 | Receivable Turnover=Net Sales /Average AR = | 2.64 |
| 15 | Day's sales in receivables=365/Receivable turnover= | 138.24 |
| 16 | Net Working Capital Turnover=Sales/Avg Working Capital= | 1.72 |
| 17 | Net Fixed Asset Turnover=Net Sales/Avg Net Fixed asset= | 0.90 |
| 18 | Total Assets Turnover=Sales/Avg Total Assets= | 0.51 |
| Profitability Ratio | Year 2018 | Year 2017 | Average |
| Total Asset | 3,173.00 | 2756 | 2,964.50 |
| Total Equity | 2,330.00 | 1920 | 2,125.00 |
| Year 2018 | ||
| 19 | Profit Margin =Net Income /Net Sales = | 32.67% |
| 20 | Return on Assets=Net Income/Avg Assets | 16.63% |
| 21 | Return on Equity=Net Income/Avg Equity | 23.20% |
| Market Value Ratio | ||
| a | Market Price /Share | 10.00 |
| b | No Of Shares Outstanding in Million | 100.00 |
| c | Net Income in Million = | 493.00 |
| d | EPS =c/b= | 4.93 |
| 22 | P/E Ratio=Price per share/EPS= | 2.03 |
| e | Market Value of Common shares in Million=a*b= | 1,000.00 |
| f | Book Value of shareholders' Eqyuity in Millions= | 2,330.00 |
| 23 | Market to Book Value =e/f= | 0.43 |
| EV =Market Value of Equity+Total short term & LT Debt-Cash | ||
| Market value of Equity in Million= | 1,000.00 | |
| Debt=LT Debt +Notes Payable =454+123=577 Million | 577.00 | |
| Cash | 221.00 | |
| 24 | Enterprise Value =1000+577-221=1356 Million | |
| 25 | EV/EBITDA Ratio=EV/EBITDA= | 1.79 |
| EBITDA=EBIT+Depreciation =694+65=759 |
3.Foreign Exchange is referred as the trading of currencies. For instance, A person can swap the GBP for the euro. Foreign exchange transactions takes places as per rates decided in the foreign exchange market which is also known as Forex.
With reference to the currencies, there are at least 2 types of currencies i.e., Home currency and foreign currency. The Home Currency means the Currency which is circulated or used in a particular Country for example AUD is in circulation in Australia consequently it is a home currency of Australia. Correspondingly, The GBP is circulated in United Kingdom. Thus, the home country of GBP is United Kingdom.
Whereas, the Foreign currency means any other currency other than the home currency i.e., the currency with which the home currency is been exchanged.
Nostro Account
Home Currency of one country is foreign currency for other country. Conversion of foreign currency in to home currency is the fundamental of foreign exchange. Consequently in order to put through the foreign exchange transaction, the bank which is sanctioned to deal in foreign exchange, preserves an account with its overseas Bank to keep stocks of foreign currencies. Normally, such account is a current account in the books of the overseas Bank. For example, an Australian bank authorized to deal in foreign exchange maintain an account with overseas bank in USA in US Dollar such account maintained in the foreign currency at foreign center by Australian bank is reffered to be ‘Nostro Account’ . Nostro is an Italian word which factually means ‘Our’. So the ‘Nostro Account’ of the Australian bank with its branch/correspondents in USA is said as ‘Our Accounts with You’.
Vostro Account
With reference to the Nostro Account, a foreign bank of other country sanctioned to deal in foreign currency maintains an accounts with foreign Bank to keep stocks of foreign currencies (home currency of the country in which the overseas branches/ correspondents is situated) for the purpose of putting through the foreign exchange transactions. For example XYZ bank of USA maintains an account with a Bank in Australia in Australian Dollars such account maintained in the foreign currency at foreign centre by Foreign bank is said as ‘Vostro Account’. ‘Vostro’ is an Italian word which literally means ‘Your’. So the ‘Vostro Account’ of the foreign bank with Australian bank in Australia is said as ‘YOUR Accounts with Us’.
Loro Account
The terms Nostro (Our) and Vostro (Your) are used in the two-sided correspondence between the concerned two Banks i.e., the Bank maintaining the account and the Bank in whose book the account is maintained. But in such communication when third bank account is referred it is said as LORO account. For example when ABC bank of Australia is maintaining an account with MNF Bank in New York USA in USD when PQR bank of Singapore refers the said account in correspondence with ABC Bank, Now YORK it is said LORO account . LORO is an Italian word which literally means ‘Their’. Loro account means ‘Third Party Account’.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
