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Questions and Answers of Corporate Finance

The company arranged a line of credit for $100,000 on January 1. The commitment fee is 0.08% (eight one-hundredths of 1%) of the total credit line. In addition, the company must pay interest of
The company intends to issue 20-year bonds with a face value of $1,000. The bonds carry a coupon rate of 10%, and interest is paid semiannually. On the issue date, the market interest rate for bonds
Bonds with a face value of $1,000 were issued for $1,030. Make the necessary journal entry on the books of the issuer.
On January 1, the company issued 15-year bonds with a face value of $100,000. The bonds carry a coupon rate of 8%, and interest is paid semiannually. On the issue date, the market interest rate for
On January 1, the company issued 15-year bonds with a face value of $100,000. The bonds carry a coupon rate of 8%, and interest is paid semiannually. On the issue date, the market interest rate for
The company issued convertible bonds with a total face value of $100,000 for $107,000. If the bonds had been issued without the conversion feature, their issuance price would have been $98,000. Make
The company has bonds payable with a total face value of $100,000 and a carrying value of $96,000.In addition, unpaid interest on the bonds has been accrued in the amount of $5,000. The lender has
On January 1, 2008, Lily Company purchased a building for $800,000. The company made a 20% down payment and took out a mortgage payable over 30 years with monthly payments of $5,616.46. The first
Ritetime Inc. is considering issuing bonds to finance the acquisition of a nationwide chain of distributors of Ritetime’s products. Ritetime is contemplating two different types of bonds to raise
Assume that $200,000 of Baker School District 6% bonds are sold on the bond issue date for $185,788. Interest is payable semiannually, and the bonds mature in 10 years. The purchase price provides a
The long-term debt section of Starr Company’s balance sheet as of December 31, 2007, included 9% bonds payable of $200,000 less unamortized discount of $16,000.Further examination revealed that
Hope Insurance decides to finance expansion of its physical facilities by issuing convertible debenture bonds. The terms of the bonds follow: maturity date 15 years after May 1, 2007, the date of
Buck Machine Company has outstanding a $150,000 note payable to Ontario Investment Corporation. Because of financial difficulties, Buck negotiates with Ontario to exchange inventory of machine parts
The following information comes from the financial statements of Burton Davis Company.Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Signal Enterprises decided to issue $900,000 of 10-year bonds. The interest rate on the bonds is stated at 7%, payable semiannually. At the time the bonds were sold, the market rate had increased to
On April 1, 1998, Miromar Tool Company authorized the sale of $8,000,000 of 7% convertible bonds with interest payment dates of April 1 and October 1. The bonds were sold on July 1, 1998, and mature
On June 1, 2007, Sunderland Inc. purchased as a long-term investment 400 of the $1,000 face value, 8% bonds of Stateline Corporation for $364,547. The bonds were purchased to yield 10% interest.
In auditing the books for Carmichael Corporation as of December 31, 2008, before the accounts are closed, you find the following long-term investment account balance:Instructions:1. Give the entries
Robison Co. issued $1,000,000 of convertible 10-year debentures on July 1, 2007. The debentures provide for 9% interest payable semiannually on January 1 and July 1. The discount in connection with
In the latter part of 2007, Odessa Company experienced severe financial pressure and was in default of meeting interest payments on long-term notes of $6,000,000 due on December 31, 2012. The
Long-term leases and long-term debt are typically recognized in the financial statements at their discounted present values. This recognition practice acknowledges the time value of money. However,
Startup Company decided to issue $100,000 worth of 10%, 5-year bonds dated January 1, 2007, with interest payable semiannually on January 1 and July 1 of each year. Due to printing and other delays,
Natural disasters occur all too often. Californians worry about earthquakes. Residents of Florida worry about hurricanes. Folks along the Mississippi River worry about flooding. The Midwest has its
Corporations commonly incur debt in financing the acquisition of other companies or in fighting takeover attacks by competitors. Two strategies often employed involve deferring interest payments and
When companies raise money through the issuance of bonds or other long-term debt instruments, debt holders typically require the company to comply with certain conditions, or covenants. The notes to
Locate The Walt Disney Company’s 2004 annual report on the Internet and answer the following questions.1. What is the largest liability listed in Disney’s 2004 balance sheet?2. By what percentage
Review the 2004 balance sheet data for Hewlett-Packard (HP) and Dell shown below.1. Compute each company€™s current ratio for 2004. Based on the result, which company appears to be more
Examine the partial balance sheet of Altria Group shown below and answer the following questions.1. Current assets for Altria Group (parent company of Philip Morris) totaled $25,901 (in millions) at
Review the H. J. Heinz Company statement below relating to its debt and answer the following questions.1. Why would H. J. Heinz have debt denominated in euros, British pounds, and New Zealand
Suppose that an investor wants to purchase a discount bond that pays $4,500 in one year. If the interest rate is 4%, then what is the absolute most the investor would be willing to pay to buy this
Tom Cruise Lines, Inc., issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 12 percent. This return was in line with
Final earnings estimates for Chilean Health Spa & Fitness Center have been for the CFO of the company and are shown in the following table. The firm has 7,500,000 shares of common stock
Waldo Company’s current stock price is $36, and its last dividend was $2.40. IN view of Waldo’s strong financial position and its consequent low risk, its required rate of return is only 12%. If
The income yield and capital gain yield of a stock are 6% and 5%, respectively. The stock paid a quarterly dividend of $1.5 per share during the year. What should the stock sell for today?
Your firm needs to raise $10 million. Assuming that flotation costs are expected to be $15 per share and the market price of the stock is $120, how many shares would have to be issued? What is the
The St. Anger Corporation needs to raise $35 million to finance its expansion into new markets. The company will sell new shares of equity via general cash offering to raise the needed funds. If the
Red Corporation, which owns stock in Blue Corporation, had a net operating income of $400,000 for the year. Blue pays Red a dividend of$60,000. Red takes a dividends received deduction of $48,000.
Your company is exploring the opportunity to buy an office building that is expected to generate a Net Operating Income (NOI) of $1,200,000 next year. The NOI is expected to grow at 3% each year.
Suppose the December CBOT treasury bond futures contract has a quoted price of 80-07. If the annual interest rates go up by 1 percentage point, what is the gain or loss on the futures contract
Discuss the variables for bond valuation. Which are fixed by contract and which vary by market fundamentals?
Zheng Enterprises, a multinational drug company specializing in Chinese medicines, issued $100 million of 15 percent coupon rate bonds in January 2005. The bonds had an initial maturity of 30 years.
What is the last yield for this bond?A) 11.%B) 14.2%C) 16.8%D) 18.9%Company: Ford Coupon: ..........11.0Maturity: .......July 31, 2009Last Price: .......65.50Last Yield: ..........?EST Spread:
You are about to purchase a $1,000 face value bond (today, October 23, 2011) which currently has 7 years to maturity (so the maturity date is 10/23/2018). The coupon, or interest, payments on this
What is the rate of return for an investor who pays $1054.47 for a three-year bond with a 7% coupon and sells the bond one year later for $1,037.19?A) 5.00%B) 5.33%C) 6.46%D) 7.00%Could you please
What is the yield to maturity of a bond with the following characteristics? Coupon rate is 8%, with semiannual payments, current price is $960, three years until maturity. (Assume FV is $1,000)A)
Ashes Divide Corporation has bonds on the market with 18 years to maturity, a YTM of 9.0 percent, and a current price of $1,226.50. The bonds make semiannual payments. What must the coupon rate be on
On January 1, Patterson Inc. issued $5,000,000,9% bonds for $4,695,000.The market rate of interest for these bonds is 10%.Interest is payable annually on December 31.Patterson uses the
Gacia Company issued $600,000 of 8%, 5-year bonds at 106, with interest paid annually. Assuming straight-line amortization, what is the carrying value of the bonds after one year?A) $636,000B)
Why do bond prices go down when interest rates go up?
The next dividend payment by Hot Wings, Inc., will be $2.65 per share. The dividends are anticipated to maintain a 4 percent growth rate forever. If the stock currently sells for $57 per share, the
Daniel and Evelyn are considering buying a house valued at $250,000. They have combined savings of $20,000, and the bank approved a $200,000 second mortgage. Also, Daniel has just won $10,000 from a
The cost of goods sold in March 2010 for Targe Co. was $2,644,100. March 31 Work in Process Inventory was 25 percent of the March 1 Work in Process Inventory. Overhead was 225 percent of direct labor
Sam Rogers forms a corporation. Sam transfers to the corporation property having a basis to him of $15,000 and a fair market value of $27,000 for 900 shares of the $10 par stock of the corporation. A
The current price of a stock is $22, and at the end of one year its price will be either $27 or $17.The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock,
Fiera co Is evaluating a new project that cost $45,000 Financed using 40% debt & 60% equity. The firms stockholders required rate of return of 18.36% and its bondholders expect 10.86% ror. The
The Ramirez Company's last dividend was $1.75. Its dividend growth rate is expected to be constant at 25% for 2 years, after which dividends are expected to grow at a rate of 6% forever. Its required
Simtek currently pays a $2.50 dividend (D0) per share. Next year’s dividend is expected to be $3 per share. After next year, dividends are expected to increase at a 9 percent annual rate for three
The Hartford Telephone Company has a $1,000 par value bond outstanding that pays 11 percent annual interest. The current yield to maturity on such bonds in the market is 14 percent. Compute the
Tom Cruise Lines, Inc., issued bonds five years ago at $1,000 per bond. These bonds had a 25-year life when issued and the annual interest payment was then 12 percent. This return was in line with
On January 3, 2011, Austin Corp. purchased 25% of the voting common stock of Gainsville Co., paying $2,500,000. Austin decided to use the equity method to account for this investment. At the time of
On February 1, 2010, Pat Weaver Inc. (PWI) issued 10%, $1,700,000 bonds for $2,000,000. PWI retired all of these bonds on January 1, 2011, at 104. Unamortized bond premium on that date was $176,800.
IPO Underpricing The Woods Co. and the Duval Co. have both announced IPOs at $30 per share. One of these is undervalued by $9, and the other is overvalued by $5, but you have no way of knowing which
Bill's Furrier marks up mink coats $3,000. This represents a 50% markup on cost. What is the cost of the coats?A.) 1,500 B.) 6,000 C.) 4,500 D.) 9,000 E.) None of these
1. If you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board), It will show all calculations and formulas Automatically Rocky Mountain Metals
How do you calculate forward risk-free interest rate?
How do you calculate % of sales in elasticity?Elasticity of demand = .4512housing income 75000expected to fall 2.5% sales will fall by _____?
The Western Sweepstakes has just informed you that you have won $1 million. The amount is to be paid out at the rate of $50,000 a year for the next 20 years. With a discount rate of 12 percent, what
Bruce Sutter invests $2,000 in a mint condition Nolan Ryan baseball card. He expects the card to increase in value by 20 percent a year for the next five years. After that, he anticipates a 15
McCaskey Corporation uses an activity-based costing system with the following three activity cost pools:Activity Cost Pool Total ActivityFabrication................ 40,000 machine-hoursOrder
Your research leads you to believe a company’s common stock will pay a dividend of $1.25 per share at the end of the year (D1 = $1.25). The stock currently sells for $32.50 per share, and your
Charles River Company has just sold a bond issue with 10 warrants attached. The bonds have a 20 years maturity, an annual coupon rate of 12 % and they sold at their $1000 par value. The current yield
An investment earns 10% the first year, 15% the second year and loses 12% the third year. Your total compound return over the three years was?
On January 1, 2011 Piper Co. issued ten-year bonds with a face value of $1,000,000 and a stated interest rate of 10%, payable semiannually on June 30 and December 31. The bonds were sold to yield
If you want the formulas and any calculations, select the corresponding cell and press F2(Function Key on key board),It will show all calculations and formulas AutomaticallyGonzales Corporation
Data for 2010 were as follows PBO, Jan 1, $ 241,000 and Dec 31, $279,000; Pension plan assets (fair value) Jan 1, $184,000, and Dec 31, $237,000. The projected benefit obligation was underfunded at
In the spring of 2010, Jemison Electric was considering an investment in a new distribution center. Jemisons CFO anticipates additional earnings before interest and taxes (EBIT) of $ 100,000 for the
Please help with solution steps of the following problem. Consider a bond paying a coupon rate of 10% per year semiannually when the market interest rate is only 4% per half-year. The bond has three
A bond has a maturity of 12 years, duration of 9.5 years at a promised yield rate of 8%. What is the bond's modified duration?
What is the difference of investment income under IFRS and GAAP?
On January 1, 2011, an investor paid $306,000 for bonds with a face amount of $360,000. The stated rate of interest is 11% while the current market rate of interest is 13%. Using the effective
A company uses exponential smoothing with trend to forecast monthly sales of its product, which show a trend pattern. At the end of week 5, the company wants to forecast sales for week 6. The trend
A manufacturer of printed circuit boards uses exponential smoothing with trend to forecast monthly demand of its product. At the end of December, the company wishes to forecast sales for January. The
I would like your thoughts on the following question. My solution was $1,200,000. On Jan 1, 2010 Doe co. issued stock options for 200,000 shares to a manager. The options have an estimated fair value
Bedford Mattress Company issued preferred stock many years ago. It carries a fixed dividend of $8 per share. With the passage of time, yields have gone down from the original 8 percent to 6 percent
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 8 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 20 percent
The treasurer of Riley Coal Co. is asked to compute the cost of fixed income securities for her corporation. Even before making the calculations, she assumes the after-tax cost of debt is at least
United Business Forms’ capital structure is as follows:Debt ............................................ 35%Preferred stock ........................... 15Common equity ..........................
Use the following information for questions 29-33. A corporation has 8,000,000 shares of stock outstanding at a price of $50 per share. They just paid a dividend of $2 and the dividend is expected to
A partial trial balance of Opticar Corp. is as follows on December 31, 2007.Additional adjusting data:1. A physical count of supplies on hand on December 31, 2007, totaled $6,500.2. Through
ABC Corporation liquidated and distributed the following assets to its individual shareholders:How much gain should ABC corporationrecognize?
Herold transfers Blackacre to Maude in exchange for Whiteacre and $125,000 in cash. The two parcels of land have the following tax attributes:Assuming these properties are held as an investment for
Sosa Co.'s stockholders' equity at January 1, 2010 is as follows:Common stock, $10 par value; authorized 300,000 shares; Outstanding 225,000 shares $2,250,000Paid-in capital in excess of par
If a stock has a beta coefficient, equal to 1.20, the risk premium associated with the market is 9 percent, and the risk-free rate is 5 percent. Based on application of the capital asset pricing
Background info for this question- The chief executive officer of Ginny's Fashion has included the following financial statements in a loan application submitted to priority bank. The company
A company had net income of $200,000 for the year ending 2008. The company decided to pay out 30% of earnings per share as a dividend. The company has 50,000 shares issued and outstanding. What are
A share of perpetual preferred stock sells for $97.50 per share, and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of4.00% of
Barrett’s Fashions forecast sales of $125,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $32,500. If the December 31 inventory is
Roscoe Inc. expects sales of Product W to be 60,000 units in April, 75,000 units in May and 70,000 units in June. The company desires that the inventory on hand at the end of each month be equal to
Powell Company uses a job order costing system. During the month of May, Powell spent most of its time on job A50, which was started late in April. Following is cost information for job A50, other
Marichal Company is set up as a corporation in 2010 to sell college logo sports clothing in college bookstores that it will purchase from Majestic. As the head accountant hired, your job is to

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