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A bond with a face value of $6,000 and an annual coupon rate of 12% convertible semiannually will mature in ten years for its fa

Alinara [238K]

Answer:

Premium is $2,677.95

The premium amortization on the 7th payment is $119

Explanation:

In order to arrive at the premium on the bond,it is necessary to compute the issuing price of the bond,which can be done using the pv formula in excel as shown below:

=-pv(rate,nper,pmt,fv)

rate is the semi-annual yield to maturity on the bond which is 6%/2=3%

nper is the number of coupon interest payable by the bond,which is 10 years multiplied by 2=20

pmt is the semi-annual coupon payable by the bond i.e 12%/2*$6000=$360

fv is the face value of the bond which is $6,000

=-pv(3%,20,360,6000)

pv=$8,677.95

premium=issue price -face value

premium=$$8,677.95-$6,000

premium=$2,677.95

The premium amortization is the excess of coupon payment over the interest expense.

In the attached, I calculated the premium amortization on the 7th payment.

I started by taking the issue price of $8677.95 ,added interest expense at 3% semi-annually ,deducted the coupon payment of $360,thereby leaving the outstanding balance at end of the year.

Note that the premium amortization is the excess of coupon payment over interest expense as colored coded.

Download xlsx

5 0

3 years ago

It costs Sheridan Company $28 of variable costs and $17 of allocated fixed costs to produce an industrial trash can that sells f

Mashutka [201]

Answer:

Option (C) is correct.

Explanation:

Variable costs = $28

Allocated fixed costs = $17

Selling price = $84

Due to acceptance of M offer, S would be got excess contribution margin per unit. Because acceptance selling price ($34) is greater than the variable cost per unit ($28).

We don't have any information about the fixed cost due to acceptance. Therefore, we assumed that fixed cost is not increased.

Increased contribution margin per unit:

= Selling price - Variable cost

= $34 - $28

= $6

For 3,000 units, Increased contribution margin = 3,000 × $6

= $18,000

Therefore, net income is increased by $18,000 when the offer is accepted.

6 0

3 years ago

Westford Corporation has $185 million dollars of interest-bearing debt outstanding at the end of fiscal 2014 year. In addition,

Ratling [72]

Answer:

B) 9.1%

Explanation:

Cost of debt is the interest rate paid by a company due to borrowing money; i.e debt from investors.

$185million in debt is the face value of debt that Westford Corporation had and the $26 million dollars of interest expense is the cost of the debt in dollars;

First, find pretax cost of debt ;

Pretax cost of debt = (Interest expense / Face value of debt )*100

= (26,000,000/ 185,000,000 )*100

=0.1405 *100

= 14.05%

Next, use pretax cost of debt to find after-tax cost of debt;

After-tax cost of debt = Pretax cost of debt (1-tax)

= 14.05% *(1-0.35)

= 9.13%

Therefore, Westford's cost of debt capital is 9.1%

6 0

3 years ago

The stated interest rate is the rate quoted in the bond contract used to calculate the cash payments for interest.

Drupady [299]

That statement is true

A stated interest rate is the return of investment that is not compounded by the interest accumulation throughout the years.
In general, a stated interest rate will give us a lower amount of return compared to effective annual interest rate that compound the accumulation throughout the years,

8 0

4 years ago

It takes a considerable amount of time to increase the production of pork. this implies that:

salantis [7]

This implies that the work would take longer as well, making the product cost more

7 0

3 years ago