Answer and Explanation:
The Journal entries is shown below:-
Jan 31
Investment in Govt Bonds Dr, $75,000
Interest Receivable Dr, $375
To Cash 75,375
(Being cash is recorded)
July 31
Cash Dr $2,250
To Interest Receivable $375
To Interest Income 1,875
($75000 × 6% × 5 ÷ 12)
(Being interest on bond is recorded)
Aug 30
Cash Dr, $34,650
Loss on Sale of Bonds Dr, $700
($35,000 - 980 × $35)
To Investment in Govt Bonds $35,000
To Interest Income $350
(Being loss on sale is recorded)
Dec 31
Interest Receivable Dr, $1,200
To Interest Income $1,200
(40 × $1,000 × 6% × 6 ÷ 12)
(Being interest on bonds is recorded)
Answer: $115998
Explanation:
Based on the information given, we can calculate the NOI from the 6th year which will be:
= $80,000 × (100% + 15%)
= $80,000 × 115%
= $80,000 × 1.15
= $92,000
Therefore, the net present value of the property based on the 10-year holding period and a discount rate of 9.5% will be:
= 80000(PVAF, 5 year) + 92000[PVAF,(10-5),9.5%] + 830000/(1.095)10-750000
= (80000 × 3.839) + (92000 × 2.439) + (830000 × 0.403) - 750000
= 307120 + 224388 + 334490 - 750000
= 865998 - 750000
= $115998
Therefore, the net present value is $115998
Answer: D
Explanation: A capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This interweaving is most apt to result in firms accepting some negative NPV all-equity projects because changing the capital structure adds enough positive leverage tax shield value to create a positive NPV.An optimal capital structure is the objectively best mix of debt, preferred stock, and common stock that maximizes a company’s market value while minimizing its cost of capital.
In theory, debt financing offers the lowest cost of capital due to its tax deductibility. However, too much debt increases the financial risk to shareholders and the return on equity that they require. Thus, companies have to find the optimal point at which the marginal benefit of debt equals the marginal cost. As it can be difficult to pinpoint the optimal structure, managers usually attempt to operate within a range of values. They also have to take into account the signals their financing decisions send to the market.
A company with good prospects will try to raise capital using debt rather than equity, to avoid dilution and sending any negative signals to the market. Announcements made about a company taking debt are typically seen as positive news, which is known as debt signaling. If a company raises too much capital during a given time period, the costs of debt, preferred stock, and common equity will begin to rise, and as this occurs, the marginal cost of capital will also rise.
To gauge how risky a company is, potential equity investors look at the debt/equity ratio. They also compare the amount of leverage other businesses in the same industry are using on the assumption that these companies are operating with an optimal capital structure—to see if the company is employing an unusual amount of debt within its capital structure.
Answer:
journal entry based on straight line method are given below
Explanation:
given data
issues = $570,000
rate = 8.5 %
time = 4 year
issued = $508,050
market rate = 12%
to find out
prepare journal entry
solution
journal entry based on straight line method
date general journal Debit Credit
June 30 bond interest expenses $31969
Discount on Bonds payable $7744
= (570000-508050 ) ÷ 8
Cash = 570000 × 8.5% ÷ 2 $24225
December 31 Bond interest expense $31969
Discount on Bonds payable $7744
= (570000-508050 ) ÷ 8
Cash = 570000 × 8.5% ÷ 2 $24225
