Pontchartrain Company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2017. Interest is paid on June 30 and De
1 answer:
Answer:
$1,568,498
Explanation:
First calculate the Amont of discount
Discount on the bond = Face value - Proceeds from the bond = $20,000,000 - $19,604,145 = $395,855
Now prepare the bond amortization
The Bond Amortization schedule is attached with this answer, please find it.
Now calculate the interest expense for 2017
Interest Expense 2017 = $784,165.80 + $784,332.43
Interest Expense 2017 = $1,568,498.23
Interest Expense 2017 = $1,568,498
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Answer:
Ans. Current Share Price=$33.85
Explanation:
Hi, we first have to establish the dividend for the first 3 years and the dividend when the growth rate falls off to a constant rate of 8% with the formula to find the present value of a perpetuity with constant growth rate. From there, we need to bring all the above cash flows to present value and that is the price of the share. The formula is as follows.
To find D1, D2,and D3, we have to do this.
D1=Do(1+0.19)
D2=D1(1+0.19)
D3=D2(1+0.19)
Since 0.19 is the growth rate for 3 years. Everything should look like this
notice that the sign of the last part do not coincide with the formula, that is because the growth rate from the first 3 years is -8%.
Best of luck.