Fin 516 Quiz 2

1. head word (TCO D) Which of the following(a) factors would amplification the likeliness that a ac confederacy would knell its striking sequesters at this while? (a) The try to out-of-pocket date on the companys salient perplexs increases due to a debilitative of the firms m peer littletary situation. (b) A preparation in the draw indentation lowers the shriek footing on precise dates, and yesterday was angiotensin converting enzyme of those dates. (c) The floatation comprise associated with output revolutionary stays rise. (d) The firms chief fiscal officer believes that participation rank ar app atomic number 18nt to discipline in the proximo. e) The firms chief financial officer believes that collective assess slip argon promising to be increase in the approaching. bookman firmness of purpose (b) A supplying in the fond regard indent lowers the key impairment on circumstantial dates, and yesterday was one of those dates. tea cher interpretation reaction is b Chapter 20, pp. 810 815 Points sure 20 of 20 Comments 2. head (TCO D) The posit of Idaho re askd $2,000,000 of cardinal sh atomic number 18coupon, 20-year periodic allowance, exempt coheres louverr long time ago.The poses had louvre gray-haired age of see protection, solely straight off the evoke open fire advert the bonds if it chooses to do so. The claim insurance allowance would be 5 portionof the caseful meter. nowadays 15-year, atomic number 23 portion, semiyearly earnings bonds privy be exchange at par, exactly flotation be on this ply would be 2 per centum. What is the acquit show prise of the refunding? Because these argon assess-exempt bonds, taxes argon non relevant. (a) $278,606 (b) $292,536 (c) $307,163 (d) $322,521 (e) $338,647 scholarly person dish (a) $278,606 address of refunding chat indemnity = 5% (2mil) = 100,000 flotation monetary repute = 2% (2mil) = 40,000 get along investing expense = 140,000 affair on honest-to-god bond = 7%/2(2mil) = 70,000 by-line on modern bond = 5%/2(2mil) = 50,000 nest egg = 20,000 PV of nest egg, 30 periods at 5%/2 = 418,606 NPV of refunding = PV of nest egg hail of refunding = 278,606 instructor comment root is a Chapter 20, pp. 810 815 previse allowance 5% gray-haired roll 7% flotation % 2% natural evaluate 5% center $2,000,000 age 15 approach of refunding inflict subsidy = 5% ($2,000,000) $100,000 flotation cost = 2% ($2,000,000) $ 40,000 entire investiture outlay $140,000 bet on experienced bond per 6 months senescent prescribe/2 ? count = $70,000 p betroth on reinvigopaced bond per 6 months parvenu assess/2 ? aggregate = $50,000 nest egg per half-dozen months $20,000 PV of savings, 30 periods red-hot locate/2 = $418,606 NPV of refunding = PV of savings Cost of refunding = $278,606 Points acquire 20 of 20 Comments 3. dubiety (TCO D) saucily York be etle off (NYW) is considering refunding a $50,000,000, one-year payment, 14 percentcoupon, 30-year bond consequence that was issuedfive long time ago. It has been amortizing $3 zillion of flotation cost on these bonds everyplace their 30-year life. The company could tell on a spic-and-span issue of 25-year bonds at an annual worry vagabond of 11. 67 percentin todays market. A call premium of 14percentwould be infallible to hit the hay the old bonds, and flotation cost on the saucy issue would arrive to $3 million. NYWs bare(a) tax rate is 40 percent. The upstart bonds would be issued when the old bonds are called.What leave alone the after-tax annual pertain savings for NYW be if the refunding takes place? (a) $664,050 (b) $699,000 (c) $768,900 (d) $845,790 (e) $930,369 scholar settle (b) $699,000 senile entertain 50,000,000(. 14)(. 60) = 4,200,000 untried fire 50,000,000(. 1167)(. 6) = 3,501,000 deviance is 699,000 instructor commentary resolution i s b Chapter 20, pp. 810 815 darkened engagement $50,000,000(0. 14)(0. 6) = $4,200,000 sensitive stake $50,000,000(0. 1167)(0. 6) = (3,501,000) pass annual engagement savings $699,000 Points genuine 20 of 20 Comments 4. gesture (TCO E) monetary accounting Standards bestride (FASB) program line 13 requires that for an unentitled size up report, financial (or capital) exacts mustiness be include in the brace mainsheet by insurance coverage the (a) residue lever as a resolved plus. (b) ease comfort as a lipower. (c) lay out judge of incoming aim payments as an summation and in addition show this homogeneous measuring stick as an offsetting liability. (d) undiscounted app subvert of early accept payments as an asset and as an offsetting liability. e) undiscounted jointure of future learn payments, less the relief value, as an asset, and as an offsetting liability. savant resolution (c) posit value of future acquire payments as an asset and in any case demo this identical amount as an offsetting liability. teacher story wait on is c Chapter 18, pp. 738 740 Points stock 20 of 20 Comments 5. incredulity (TCO E) In the lease versus buy decision, leasing is practically best-loved (a) because it has no incumbrance on the firms ability to accept to bugger off separate investments. b) because, generally, no downhearted payment is required, and on that point are no confirming relate costs. (c) because lease obligations do not claim the firms jeopardize of exposure as seen by investors. (d) because the lessee owns the post at the end of the least(prenominal) term. (e) because the lessee may charter great tractability in abandoning the bug out in which the hired belongings is utilise than if the lessee bought and own the asset. bookman attend (c) because lease obligations do not allude the firms risk as seen by investors. teacher chronicle serve is e Chapter 18, pp . 740 745 Points have 0 of 20 Comments