708 Words3 Pages

Submitted by: Patrick R. Hariramani
Question # 1 1. First before an expense or any entry should be recognized it must be feasible to estimate at least the minimum amount of gain or loss. In this problem there can be no estimate given because it may win or lose. So no amount is recorded and there was no expense yet incurred. The best way to record the suit is by disclosing in a note to the financial statements. 2. This problem is different from number 1 because there is an estimate on how much it will lose. The $50,000 should be shown as an expense rather debiting it directly to Retained Earnings. It should be recorded as
Law suit loss $50,000 Low suit Liability $50,000
Lawsuit Loss will be recorded in Income Statement under*…show more content…*

The depreciation is based on the car’s life not of the lease agreement. Question # 2 In item #4 we assumed that the $100,000 bond with a 5% rate involves a 15 year-end annual interest payments of $5,000 (100,000*.05). The payments is assumed to be annual, at year end. In appendix B the value of 8% for 15 years is 8.559. so the present value of $5,000 is $42,795, for interest payments $100,000*.315 which is $31,500. In total it will be $74,295; since the investors paid $80,000 the yield rate is less than 8%. As for the correctness of the $748 first year bond discount amortization, the calculation follows: Since the bond proceeds were $80,000 and the true yield is 7.23% per year. 7.23% came from the interest table that I have. Then for Year 1 net interest should be $80,000*.0723 =$5784. But the stated interest payment is $5,000, thus the $784 interest expense is amortization of the bond discount. Question # 3 The interest rate is determined by finding the value in Appendix B equal to $35,000 divided by the annual payments of $13,581 for a period of 3 years. (35,000/13,581 = 2.577). The interest rate is 8%. Amortization

The depreciation is based on the car’s life not of the lease agreement. Question # 2 In item #4 we assumed that the $100,000 bond with a 5% rate involves a 15 year-end annual interest payments of $5,000 (100,000*.05). The payments is assumed to be annual, at year end. In appendix B the value of 8% for 15 years is 8.559. so the present value of $5,000 is $42,795, for interest payments $100,000*.315 which is $31,500. In total it will be $74,295; since the investors paid $80,000 the yield rate is less than 8%. As for the correctness of the $748 first year bond discount amortization, the calculation follows: Since the bond proceeds were $80,000 and the true yield is 7.23% per year. 7.23% came from the interest table that I have. Then for Year 1 net interest should be $80,000*.0723 =$5784. But the stated interest payment is $5,000, thus the $784 interest expense is amortization of the bond discount. Question # 3 The interest rate is determined by finding the value in Appendix B equal to $35,000 divided by the annual payments of $13,581 for a period of 3 years. (35,000/13,581 = 2.577). The interest rate is 8%. Amortization

Related

## Fin 515 Week 3

714 Words | 3 PagesThe bonds mature in 8 years, have a face value of $1,000, and a yield to maturity of 8.5%. What is the price of the bonds? 50*11.44+1000*.5138 = 1086 • 5-13 Yield to Maturity and Current Yield You just purchased a bond that matures in 5 years. The bond has a face value of $1,000 and has an 8% annual coupon. The bond has a current yield of 8.21%.

## Accounting Essay

964 Words | 4 Pages6 percent in the second year. c. 5 percent in the third year. What would be the third year future value? (LG4-3) FV = 350 × (1 + 0.08) (1 + 0.06) (1 + 0.05) 350 × 1.08 × 1.06 × 1.05 Answer: 420.71 4-8 Compounding with Different Interest Rates A deposit of $750 earns interest rates of 10 percent in the first year and 12 percent in the second year. What would be the second year future value?

## Fin331 Essay

6553 Words | 27 PagesFor a preferred stock with the dividend amount of $2.00 each quarter, what is the PV of it with an annual discount rate of 8%? If the price of the preferred stock is $80, what is the yield (ROI, APR) of this security? a. $60, 8% b. $80, 8% c. $60, 10% d. $80, 10% e. $100, 10% Answer: e V0 = D/k = 8/0.08 = $100.

## Chapter 13 1. a $1,000 Bond Has a Coupon of 6 Percent and Matures After 10 Years.

1557 Words | 7 Pages8% b. 8% 2. a. A $1,000 bond has a 7.5 percent coupon and matures after 10 years. If current interest rates are 10 percent, what should be the price of the bond? Price = $1,000 x 0.3855 + $1,000 x 7.5% x 6.1446 Price = $385.50 + $460.85 Price = $846.35 b.

## Fin 515 Week 2

1228 Words | 5 PagesChapter 4 (pages 132–136): 3. Calculate the future value of $2000 in a. five years at an interest rate of 5% per year; FV5= 2,000*1.05^5=2, 552.56 b. ten years at an interest rate of 5% per year; and FV10= 2,000*1.05^10=3,257.79 c. five years at an interest rate of 10% per year. FV5=2,000*1.1^5=3,221.02 d. Why is the amount of interest earned in part (a) less than half the amount of interest earned in part (b)? The amount of interest is less in part a than in part b because in the last 5 years you get interest on the interest earned in the first 5 years as well as interest on the original $2,000. 4.

## Homework 35 Essay

508 Words | 3 PagesShould the company purchase the small technology firm? Use an interest rate of 12%. What is the “breakeven price” of the small technology firm? (Points : 10)\ 2. A bond has a par value of $100,000 and pays interest revenues of $5,000 per year.

## Nike Essay

543 Words | 3 Pagescost of equity =I used the 20 year at 5.74%+Geometric mean=5.9%x most recent beta .69=9.81% Cost of Debt I used Yield to maturity to find cost of debt From Exhibit 4 PV= 95.60 N=40 (20years x 2) since its paid semiannually Pmt=-3.375 (6.75/2) FV=-100 Comp I = 3.58% (semiannual) 7.16% (annual) After tax cost of debt = 7.16%(1-38%) = 4.44% E = market value of the firm's equity To find Market value of Equity you multiply share price by amount of shares $42.09x273.3= 11503. D = market value of the firm's debt I valued book value of debt at 1,291 Then divide 11503/(11503+1291)=89.9 so the weight for debt is 10.1 percent When I calculated WACC 4.44%x.101+9.81%x.899= 9.27% Cohen made a few mistakes when she calculated her WACC. First, she used historical data in

## Midland Chemical Co.

754 Words | 4 Pages$500,000 at 8.25% = Interest at $41,250 With a $500,000 loan the 20% compensating balance requirement would be $100,000 which leaves $400,000 in available funds. To calculate the effective rate, divide interest by available funds. $41,250/400,000 = 10.312% Loan with fee added. $500,000 at 9.75% = interest at $48,750 The interest plus the fee $48,750 + $5,500 = $54,250 To calculate the effective rate, divide the interest plus fees by the loan amount, $54,250/$500,000 =10.850% The loan with the compensating requirement has the lower effective cost at 10.312%. b.

## Fast Food Nation

1286 Words | 6 PagesUNIT 4 Exam Review 1) You have purchased $70,000 worth of goods. The dealer is giving you terms of 3/10, n/60. You were billed on March 15 and given a loan rate of 6.5%. If you take out a loan to take advantage of the discount, how much do you really save by getting the loan and taking advantage of the discount, but still paying interest? Answer: Amount of discount = 70,000 * .03 = $2100.

## Text Problem Sets and Concept and Principles Summary Fin571, Uop, Week 2

2067 Words | 9 PagesText Problem Sets and Concept and Principles Summary FIN 571 Text Problem Sets and Concept and Principles Summary Problem A3: (Bond valuation) General Electric made a coupon payment yesterday on its 6.75% bonds that mature in 8.5 years. If the required return on these bonds is 8% APR, what should be the market price of these bonds? PMT -33.75 FV -1000 N 17 Rate 4% Market Price $923.96 Fair Value of a bond = C/r*(1-1/(1+r)^n)+M/(1+r)^n Assuming that it’s a semi-annual bond with face value of $1000 A13. (Required return for a preferred stock) Sony $4.50 preferred is selling for $65.50. The preferred dividend is non-growing.

### Fin 515 Week 3

714 Words | 3 Pages### Accounting Essay

964 Words | 4 Pages### Fin331 Essay

6553 Words | 27 Pages### Chapter 13 1. a $1,000 Bond Has a Coupon of 6 Percent and Matures After 10 Years.

1557 Words | 7 Pages### Fin 515 Week 2

1228 Words | 5 Pages### Homework 35 Essay

508 Words | 3 Pages### Nike Essay

543 Words | 3 Pages### Midland Chemical Co.

754 Words | 4 Pages### Fast Food Nation

1286 Words | 6 Pages### Text Problem Sets and Concept and Principles Summary Fin571, Uop, Week 2

2067 Words | 9 Pages