152 sorenson co is considering the following alternative plans for financing their c 4295247
152. Sorenson Co., is considering the following alternative plans for financing their company:
|
|
Plan I |
Plan II |
|
Issue 10% Bonds (at face) |
– |
$3,000,000 |
|
Issue $10 par Common Stock |
$4,000,000 |
$1,000,000 |
|
|
|
|
Income tax is estimated at 40% of income.
Determine the earnings per share of common stock under the two alternative financing plans, assuming income before bond interest and income tax is $1,000,000.
153. Using the following table, what is the present value of $25,000 to be received 5 years, if the market rate is 7% compounded annually?
|
Periods |
5% |
6% |
7% |
10% |
|
1 |
.95238 |
.94340 |
.93458 |
.90909 |
|
2 |
.90703 |
.89000 |
.87344 |
.82645 |
|
3 |
.86384 |
.83962 |
.81630 |
.75132 |
|
4 |
.82270 |
.79209 |
.76290 |
.68301 |
|
5 |
.78353 |
.74726 |
.71299 |
.62092 |
|
6 |
.74622 |
.70496 |
.66634 |
.56447 |
|
7 |
.71068 |
.66506 |
.62275 |
.51316 |
|
8 |
.67684 |
.62741 |
.58201 |
.46651 |
|
9 |
.64461 |
.59190 |
.54393 |
.42410 |
|
10 |
.61391 |
.55840 |
.50835 |
.38554 |
|
|
|
|
|
|
154. Using the following table, what is the present value of $5,000 to be received 5 years, if the market rate is 10% compounded annually?
|
Periods |
5% |
6% |
7% |
10% |
|
1 |
.95238 |
.94340 |
.93458 |
.90909 |
|
2 |
.90703 |
.89000 |
.87344 |
.82645 |
|
3 |
.86384 |
.83962 |
.81630 |
.75132 |
|
4 |
.82270 |
.79209 |
.76290 |
.68301 |
|
5 |
.78353 |
.74726 |
.71299 |
.62092 |
|
6 |
.74622 |
.70496 |
.66634 |
.56447 |
|
7 |
.71068 |
.66506 |
.62275 |
.51316 |
|
8 |
.67684 |
.62741 |
.58201 |
.46651 |
|
9 |
.64461 |
.59190 |
.54393 |
.42410 |
|
10 |
.61391 |
.55840 |
.50835 |
.38554 |
|
|
|
|
|
|
155. Use the following tables to calculate the present value of a $25,000 7%, 5 year bond that pays $1,750 ($25,000 ´ 7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest
|
Periods |
5% |
6% |
7% |
10% |
|
1 |
.95238 |
.94340 |
.93458 |
.90909 |
|
2 |
.90703 |
.89000 |
.87344 |
.82645 |
|
3 |
.86384 |
.83962 |
.81630 |
.75132 |
|
4 |
.82270 |
.79209 |
.76290 |
.68301 |
|
5 |
.78353 |
.74726 |
.71299 |
.62092 |
|
6 |
.74622 |
.70496 |
.66634 |
.56447 |
|
7 |
.71068 |
.66506 |
.62275 |
.51316 |
|
8 |
.67684 |
.62741 |
.58201 |
.46651 |
|
9 |
.64461 |
.59190 |
.54393 |
.42410 |
|
10 |
.61391 |
.55840 |
.50835 |
.38554 |
|
|
|
|
|
|
Present Value of Annuity of $1 at Compound Interest
|
Periods |
5% |
6% |
7% |
10% |
|
1 |
.95238 |
.94340 |
.93458 |
.90909 |
|
2 |
1.85941 |
1.83339 |
1.80802 |
1.73554 |
|
3 |
2.72325 |
2.67301 |
2.62432 |
2.48685 |
|
4 |
3.54595 |
3.46511 |
3.38721 |
3.16987 |
|
5 |
4.32948 |
4.21236 |
4.10020 |
3.79079 |
|
6 |
5.07569 |
4.91732 |
4.76654 |
4.35526 |
|
7 |
5.78637 |
5.58238 |
5.38929 |
4.86842 |
|
8 |
6.46321 |
6.20979 |
5.97130 |
5.33493 |
|
9 |
7.10782 |
6.80169 |
6.51523 |
5.75902 |
|
10 |
7.72174 |
7.36009 |
7.02358 |
6.14457 |
|
|
|
|
|
|
156. On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 ´ 7% ´ 1/2), receiving cash of $884,171. Journalize the entry to record the issuance of the bonds.