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3 years ago

A firm is considering two mutually exclusive projects, X and Y, with the following cash flows:

Business

1 answer:

Murrr4er [49]3 years ago

4 0

Answer: MIRR (project x ) = 3.42% , Project Y = 4.51%

Explanation:

Modified internal Rate of return

Project X

Period (n) = 4

Weighted Average Cost of equity(WACC) = 8.0%

Cash out flow = -$1000

Cash Inflows = $100 year 1 , $280 year 2 , 370 year 3 ,$700 year 4

Present Value Cash Inflows = PVCIF = Cash Inflow/(1+WACC)^n

PVCIF = 100/(1+0.08)^1 + 280/(1+0.08)^2 + 370/(1+0.08)^3 + $700/(1+0.08)^4

PVCIF = 95.592592593 + 240.05486968 + 293.71792918 + 514.5208969

Present Value of Cash inflows (PVCIF) = $1143.8862884

Present Value of Cash out flows(PVCOF) = -$1000

Modified Internal Rate of Return (MIRR) = $\sqrt[n]{\frac{PVCIF}{PVCOF} } -1$

Modified Internal Rate of Return (MIRR) = $\sqrt[4]{\frac{1143.8862884}{10000} } -1$

Modified Internal Rate of Return (MIRR) = 0.034178971

Modified Internal Rate of Return (MIRR) = 3.41789971 = 3.42%

Project Y

Period (n) = 4

Weighted Average Cost of equity(WACC) = 8.0%

Cash out flow = -$1000

Cash Inflows = $1100 year 1 , $110 year 2 , $50 year 3 ,$55 year 4

Present Value Cash Inflows = PVCIF = Cash Inflow/(1+WACC)^n

PVCIF = $1100/(1+0.08)^1 + $110/(1+0.08)^2 + $50/(1+0.08)^3 + $55/(1+0.08)^4

PVCIF = 1018.5185185 + 94.307270233 + 39.691612051 + 40.42641904

Present Value of Cash inflows (PVCIF) = $10192.9438198

Present Value of Cash out flows(PVCOF) = -$1000

Modified Internal Rate of Return (MIRR) = $\sqrt[n]{\frac{PVCIF}{PVCOF} } -1$

Modified Internal Rate of Return (MIRR) = $\sqrt[4]{\frac{1192.9438198}{10000} } -1$

Modified Internal Rate of Return (MIRR) = 0.0450931421

Modified Internal Rate of Return (MIRR) = = 4.50931421 = 4.51%

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g On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations of produ

Elis [28]

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Total Years = 5, semiannually = 5 × 2 = 10

Rate = 7% yearly, semiannually rate = 7 ÷ 2 = 3.5%

Journal Entries

On Jan 1

Cash A/c Dr. $9,594,415

Discount on bonds payable A/c Dr. $405,585

To Bonds payable A/c $10,000,000

(Being the issuance of bond payable is recorded)

Discount value of issued bonds = $10,000,000 - $9,594,415 = $405,585

2).

On Jun

Interest expenses A/c Dr. $390,559

Discount on bonds payable A/c($405,585 ÷10) Dr.40,559

To Cash A/c($10,000,0000 × 3.5%) $350,000

(Being the payment of first semiannual interest is recorded)

3).

On Dec 31

Interest expenses A/c Dr. $390,559

Discount on bonds payable A/c($405,585*10/100) Dr.$40,559

To Cash A/c($10,000,000*3.5/100) $350,000

(Being the payment of second semiannual interest is recorded)

b). Bond Interest Expense Amount for First Year

= Interest Expenses + Amortized Discount

= $700,000 + $81,117

= $781,117

Interest expenses = $350,000 + $350,000 = $700,000

Amortized Discount = $40,559 + $40,559 = $81,117

c).The Company issued the bonds at $9,594,415 for the face amount of $10,000,000 because bonds issued at discount for $405,585 as the coupon rate is less than the market interest.

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3 years ago

Grossnickle Corporation issues 20-year, noncallable, 7.1% annual coupon bonds at their par value of $1,000 one year ago. Today,

8_murik_8 [283]

Answer:

Price of bond= $1,185.72

Explanation:

<em>The price of a bond is the present value (PV) of the future cash inflows expected from the bond discounted using the yield to maturity. </em>

These cash flows include interest payment and redemption value

The price of the bond can be calculated as follows:

Step 1

PV of interest payment

annual coupon rate = 7.1%

Annual Interest payment =( 7.1%×$1000)= $71

Annual yield = = 5.5%

PV of interest payment

= A ×(1- (1+r)^(-n))/r

A- interest payment, r- yield - 5.5%, n- no of periods -19 periods

= 71× (1-(1.055)^(-19))/0.055)

= 71× 11.60765352

= 824.143

Step 2

PV of redemption value (RV)

PV = RV × (1+r)^(-n)

RV - redemption value- $1000, n- 19, r- 5.5%

= 1,000 × (1+0.055)^(-19)

= 361.579

Step 3

Price of bond = PV of interest payment + PV of RV

$824.143 + $361.579

Price of bond= $1,185.72

7 0

3 years ago

Bonds can be issued with detachable warrants. When this occurs, how should the cash received at the issuance be accounted for: M

Temka [501]

Answer:

The proceeds from the bond issue are allocated between the bonds and the warrants on the basis of their relative market values.

Explanation:

Bonds are securities issued by the company where investor can invest in such securities and can earn interest.

Warrants are rights which states that on redemption of bonds it shall be converted into company's shares.

When bonds are issued with detachable warrants, that means there is a basic amount of bonds and warrants. Also, each shall be accounted separately.

Bond issue of these bonds includes value of bonds that shall be accounted and added to value of bonds, and the value of warrants shall be accounted in warrants.

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3 years ago

There are over 100 companies that manufacture natural and artificial flavorings used to enhance the taste of food before it is s

makvit [3.9K]

Answer:

The answer is monopolistic competition.

Explanation:

Monopolistic competition refers to a market type where there are several producers who sell the same type of products, but differentiated from one another; thus making their products unable to be substituted for one another. This is the case in the scenario at the question; though there are multiple companies producing natural and artificial flavorings, due to the different in how they taste, each company’s product cannot be substituted with one another’s.

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2 years ago

Read 2 more answers

REITs pay dividends in order to retain their favorable tax status. As the next chapter on stock explains, corporate dividends ar

meriva

Answer:

Correlation coefficients relating the distributions to FFO = 0.8393

Correlation coefficients relating the distributions to EPS = –0.0880

Explanation:

Let X represents distributions, Y represents FFO, and, Z represents EPS.

Note: See the attached excel file for the calculations of Means of X, Y and Z as well as other values.

Therefore, we have:

Correlation coefficients relating the distributions to FFO = (Total of (X - Mean of X) * (Y - Mean of Y)) / ((Total of (X - Mean of X)^2) * (Total of (Y - Mean of Y)^2))^0.5 = 0.7529 / (0.8554 * 0.9408)^0.5 = 0.8393

Correlation coefficients relating the distributions to EPS = (Total of (X - Mean of X) * (Z - Mean of Z)) / ((Total of (X - Mean of X)^2) * (Total of (Z - Mean of Z)^2))^0.5 = –0.1391 / (0.8554 * 2.9200)^0.5 = –0.0880

Download xlsx

7 0

3 years ago