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Alinara [238K]
3 years ago
14

Ellis issues 8.0%, five-year bonds dated January 1, 2018, with a $530,000 par value. The bonds pay interest on June 30 and Decem

ber 31 and are issued at a price of $575,210. The annual market rate is 6% on the issue date.
Requlrec:
1. Complete the below table to calculate the total bond interest expense over the bonds' life.
2. Prepare a straight-line amortization table for the bonds' life.
3. Prepare the journal entries to record the first two interest payments.

Business
1 answer:
Ket [755]3 years ago
6 0

Answer:

1. Total interest rate is $166,790

2. Refer to the attached file for the straight-line amortization table for the bonds' life.

3.

To record interest rate paid in 30th June 2018:

Dr Interest expenses                            16,679

Dr Premium on bond payable             4,521

Cr Cash                                                 21,200

To record interest rate paid in 31st Dec 2018:

Dr Interest expenses                            16,679

Dr Premium on bond payable             4,521

Cr Cash                                                 21,200

Explanation:

Total interest rate as followed : Interest payment - Premium on bond payable = 530,000 x 8% /2 x 10 - (575,210 - 530,000) =166,790.

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tresset_1 [31]

Answer:

Division 1's WACC - Division 2's WACC = 11.752% - 14.6656% = - 1.9136% or Division 1 has the lower cost of capital of 1.9136% in absolute term comparing to Division 2.

Explanation:

Before starting, we need to convert unlevered beta into levered beta:

Levered beta of Division 1: 1.2 x ( 1 + (1-40%) x 0.25) = 1.38

Leverage beta of Division 2: 1.46 x ( 1+ (1-40%) x 0.25) = 1.679

Then, we start step by step as below:

First, using the CAPM model: Cost of equity = risk-free rate of return +  beta *(Market Rate of Return – Risk-free Rate of Return) , we find the cost of equity for Division 1 and Division 2.

  - Division 1's cost of Equity = 4% + 1.38 x( 12% -4%) = 15.04%

  - Division 2's cost of equity = 4% + 1.46 x (12% - 4%) = 17.432%

Second, determine the post-tax cost of debt applied for both Division: 6% x (1-tax rate) = 6% x (1 -40%) = 3.60%

Third, calculate the WACC for each Division:

  - Division 1's WACC = % of debt in capital structure x cost of debt + % of equity in capital structure x cost of equity = 20% x 3.6% + 80% x 15.04% = 11.752%;

  - Division 2's WACC = % of debt in capital structure x cost of debt + % of equity in capital structure x cost of equity = 20% x 3.6% + 80% x 17.432% = 14.6656%;

Finally, compare the WACC between the two Division:

Division 1's WACC - Division 2's WACC = 11.752% - 14.6656% = - 1.9136% or Division 1 has the lower cost of capital of 1.9136% in absolute term comparing to Division 2.

6 0
3 years ago
Read 2 more answers
Aberwald Corporation expects to sell 90,000 bags of lawn fertilizer annually. The optimal safety stock (which is on hand initial
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Answer:

Annual demand (U) = 90.000 bags

Cost of each bag = $1.50

Inventory carrying cost per unit(C) = $1.50 × 20% = 0 30

Ordering cost per unit (O) = $15

Part A)

EOQ = \sqrt{\frac{2UO}{C}}

EOQ = \sqrt{\frac{2 * 90000 * 15}{0.30}}

EOQ = \sqrt{9000000}

EOQ = 3,000

Part B)

Maximum inventory = EOQ + Safety inventory on hand  

Maximum inventory = 3000 + 1000

Maximum inventory = 4.000

Part C)

Average inventory = Maximum inventory + Minimum or Safety /2

Average inventory = 4,000 + 1,000 / 2

Average inventory =2,500

Part D)

How often company order = Annual demand / EOQ

How often company order = 90,000 / 3.000

How often company order = 30

4 0
3 years ago
Payback Period Payson Manufacturing is considering an investment in a new automated manufacturing system. The new system require
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Answer:

a. 4 years

b. 5 years

Explanation:

The payback period is the time taken for the cash inflows from an investment to equal to the initial cash outflow or amount invested. To get this, the cash inflow are deducted from the outflows until the net is zero.

Considering both expected cash flows (all amounts in $);

Period    Initial out flow   Inflow         Balance         Inflow         Balance

Year 0    (1,200,000)              0          (1,200,000)       0            (1,200,000)      

Year 1                             300,000       (900,000)    150,000     (1,050,000)

Year 2                            300,000       (600,000)    150,000     (1,050,000)

Year 3                            300,000       (300,000)    400,000     (1,050,000)  

Year 4                            300,000               0           400,000     (1,050,000)  

Year 5                                                                        100,000     (1,050,000)

From the table above, with an inflow of $300,000 yearly, the inflows would equal the total outflow in 4 years while the annual cash flows: $150,000, $150,000, $400,000, $400,000, and $100,000 would make the inflows equal to the outflows in 5 years.

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3 years ago
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Answer:

holders of financial assets with fixed money values increase their spending.

Explanation:

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Answer:

website

Explanation:

Based on the information provided within the question it can be said that the best source of information for this scenario would be a website. Any website that provides information regarding the specs and abilities of the cameras that you are considering purchasing would provide the most helpful information in your decision buying process.

7 0
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