Product A is normally sold for $9.60 per unit. A special price of $7.20 is offered for the export market. The variable productio
n cost is $5.00 per unit. An additional export tariff of 15% of revenue must be paid for all export products. Assume there is sufficient capacity for the special order. a. Prepare a differential analysis dated March 16 on whether to reject (Alternative 1) or accept (Alternative 2) the special order. Round your answers to two decimal places. If an amount is zero, enter "0". For those boxes in which you must enter subtracted or negative numbers use a minus sign.
1 answer:
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To find the change in the price of the bonds, first need to find the price of individual Bond.
Bond Price is directly related to the change in the YTM of the bond. If the YTM rises by 2%, the price of the bond will fall.
Bond J :
(WHEN YTM IS 8%)
Coupon Rate: 5%
Coupon Amount (PMT): $1,000 * 5% = $50/2 = $25 (Semi annual coupon amounts)
Number of years (NPER) = 13*2 = 26
YTM (rate) = 8%/2 = 4%
Face Value: $1000
Price (PV0) : ?
To find the price of the bond, can either use excel or with formula.
When input the below formula in excel,
PV =pv(rate,nper,pmt,fv,type)
P0 =pv(4%,26,-25,-1000)
When input the formula in excel, we get PV as $760.26
(WHEN YTM RISES BY 2%, NEW YTM IS 10%)
Coupon Amount (PMT): $25 (Semi annual coupon amounts)
Number of years (NPER) = 26
YTM (rate) = 10%/2 = 5%
Face Value: $1000
Price (PV1) : ?
To find the price of the bond, can either use excel or with formula.
When input the below formula in excel,
PV =pv(rate,nper,pmt,fv,type)
P1 =pv(5%,26,-25,-1000)
When input the formula in excel, we get PV as $640.62
CHANGE IN THE BOND PRICE OF BOND J DUE TO THE CHANGE IN THE YTM
%change = (P1 – P0)/P0
%change = ($640.62 - $760.26)/$760.26
%change = -18.68%
Therefore, with the increase in 2% YTM of BOND J, the price falls by 18.68%
Bond K :
(WHEN YTM IS 8%)
Coupon Rate: 11%
Coupon Amount (PMT): $1,000 * 11% = $110/2 = $55 (Semi annual coupon amounts)
Number of years (NPER) = 13*2 = 26
YTM (rate) = 8%/2 = 4%
Face Value: $1000
Price (PV0) : ?
To find the price of the bond, can either use excel or with formula.
When input the below formula in excel,
PV =pv(rate,nper,pmt,fv,type)
P0 =pv(4%,26,-55,-1000)
When input the formula in excel, we get PV as $1,239.74
(WHEN YTM RISES BY 2%, NEW YTM IS 10%)
Coupon Amount (PMT): $55 (Semi annual coupon amounts)
Number of years (NPER) = 26
YTM (rate) = 10%/2 = 5%
Face Value: $1000
Price (PV1) : ?
To find the price of the bond, can either use excel or with formula.
When input the below formula in excel,
PV =pv(rate,nper,pmt,fv,type)
P1 =pv(5%,26,-55,-1000)
When input the formula in excel, we get PV as $1,071.88
CHANGE IN THE BOND PRICE OF BOND K DUE TO THE CHANGE IN THE YTM
%change = (P1 – P0)/P0
%change = ($1071.88 - $1239.74)/$1239.74
%change = -13.54%
Therefore, with the increase in 2% YTM of BOND k, the price falls by 13.54%
SIMILALRY IF THE BOND PRICES FALLS BY 2%, the YTM WILL BE 6%/2 = 3% **(REFER THE IMAGE ATTACHED)
Answer:
The solution of the given query is explained throughout the segment below.
Explanation:
The given values are:
Company issued amount,
= $6,500,000
Rate of interest,
= 6%
Time,
= 10 years
Now,
On bonds payable amortization, the discount will be:
=
=
= ($)
Interest expenses will be:
=
=
= ($)