Present Value of Bonds Payable; Premium Moss Co. issued $100,000 of four-year, 12% bonds with interest payable semiannually, at
1 answer:
<u>Solution and Explanation:</u>
Face Value of Bonds = $100,000
Annual Coupon Rate = 12.00% , Semi-annual Coupon Rate = 6.00%
Semiannual Coupon = 6.00% * $100,000 , Semiannual Coupon = $6,000
Annual Interest Rate = 9.00% , Semiannual Interest Rate = 4.50%
Time to Maturity = 5 years , Semiannual Period = 10
Present Value of Bonds
Present Value of Bonds =
Present Value of Bonds = $111,869
So, present value of the bonds payable is $111,869
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Answer: Machine B because it has the lower Present Value
Explanation:
<h2>Machine A</h2>= Present Value of income - Present Value of Costs
Present value of Income;
Sold for $5,000 after 10 years.
= 5,000/ (1 + 8%)^10
= $2,315.97
Present Value of Costs;
Purchased for $48,000.
Maintenance of $1,000 per year for years.
Present value of maintenance= 1,000 * Present value factor of annuity, 10 years, 8%
= 1,000 * 6.7101
= $6,710.10
Machine A Present Value
= 2,315.97 - 6,710.10 - 48,000
= -$52,394
<h2>Machine B</h2>No salvage value.
Present Value of costs
Purchased for $40,000.
Present value of maintenance = (4,000 / (1 + 8%)^3) + (5,000 / ( 1 + 8)^6) + (6,000 / ( 1 + 8%)^8)
= -$9,567.79
Present Value = -40,000 - 9,567.79
= -$49,568
