Tax a tax adjustment must be made in determining the cost of
1 answer:
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Answer:
∑( Cash flow × PVF) = 79,347
Explanation:
Given:
Opportunity cost = 9%
Cash flow for 1-5 years = 10,000
Cash flow for 6-10 years = 16,000
Now,
Present value factor (PVF) =
here, n is the year
For year 1 to 5
Year Cash flow PVF Cash flow × PVF
1 10000 0.9174 9174
2 10000 0.8417 8417
3 10000 0.7722 7722
4 10000 0.7084 7084
5 10000 0.6499 6499
for years 6 to 10
Year Cash flow PVF Cash flow × PVF
6 16000 0.5963 9540.8
7 16000 0.547 8752
8 16000 0.5019 8030.4
9 16000 0.4604 7366.4
10 16000 0.4224 6758.4
========================================================
∑( Cash flow × PVF) = 79,347
========================================================
taking the PVF to 5 decimal places will make 79,347 ≈ 79,348
Answer:
Given:
12% bonds have a face value of $35,000,000
Bonds sold for $37,702,483 based on the market interest rate of 10%.
∴
The interest expense on July 1 can be computed as
Interest expense = Bonds sold × Effective market interest rate ( = 5%)
= $37,702,483 × .05 (1/2 of the effective interest rate)
= $1,885,124
⇒ The interest expense on July 1 is $1,885,124