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.