On December1, Mountain and Meadow Tree Service prepaid $6,600 for six months' rent. Give the adjusting entry to record rent ex
1 answer:
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Answer: Net Present Value = -$19,062
Explanation:
First, we'll compute the PV for the respective years
Present Value (Year-1)
=
=0.6179945
Present Value (Year-2)
=
=0.614904528
Present Value (Year-3)
=
=0.611830005
Now, we'll compute the Cash Flow for the respective years
Cash Flow (Initial)
=
= -$209,306.07
Cash Flow (Year-1)
=
=$32,362.75
Cash Flow (Year-2)
=
=$81,313.44
Cash Flow (Year-3)
=
=$147,099.68
Net Present Value:
= -$209,306.07 + ($32,362.75/1.141)+ ($81,313.44/1.142) +($147,099.68/1.143)
= -$209,306.07 +$28,388.38 + $62,568.05 + $99,288.10
= -$19,062
Answer:
As the actual price of such bonds should be $950.51 and the bonds are offered at a lower price, the bonds should be bought at the offered price.
Explanation:
To determine whether the bonds should be bought at the given price or not, we first need to calculate the price of the bond. The formula for the price of the bond is attached.
The interest payed by the bonds can be treated as an annuity.
The semiannual rate will be = 9% / 2 = 4.5%
The number of semi annual payments will be = 7 * 2 = 14
The YTM expressed semi annually will be (r) = 10% / 2 = 5%
Semi annual coupon payment or C = 1000 * 0.045 = 45
Bond Price = 45 * [(1 - (1+0.05)^-14) / 0.05] + 1000 / (1+0.05)^14
Bond Price = 950.5068 rounded off to $950.51
As the actual price of such bonds should be $950.51 and they are offered at a lower price, the bonds should be bought at the offered price.
