acc1 Monique borrowed $470,000 at a 7.5% annual interest rate from a local financial institution tofinance the following investments.CostPaintings from well-known galleries $50,000 Guaranteed Investment Certificate paying interestat 6% per annum $20,000 Common shares (3% annual dividend) $30,000 Gold bullion (treatedas capital) $70,000 Cryptocurrency (treated as capital) $80,000 Corporate bond (yield is 7% perannum) $20,000 Preferred shares (5% annual dividend) purchased in RRSP $50,000 Commonshares of a public corporation paying dividends$150,000 Total cost $470,000REQUIRED: Assuming that the investments were held for the full calendar year, determine thedeductibility of interest expense for each investment.

For investments that produce taxable income (such as interest or dividends) and for investments that…

Answered: Monique borrowed $470,000 at a 7.5%…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter11: Bond Pricing And Amortization (bonds)

Section: Chapter Questions

Problem 1R: The University Club recently issued 1,500,000 of 10-year, 9% bonds at an effective interest rate of...

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An investor spends $25,000 for corporate bonds of another company late in Year One. The bonds are worth $26,000 at the end of that year on the open market. Early in Year Two, $1,300 in interest is received from this investment. Shortly thereafter, the debt investment is sold for $27,000. If this asset is an investment in trading debt securities, what is the impact on net income in Year Two? O Increase by $4,300. O Increase by $3,300. O Increase by $1,300. O Increase by $2,300.
Harper’s Dog Pens, Inc. with the help of its investment bank, recently issued $199.1 million of new debt. The offer price on the debt was $1,000 per bond and the underwriter’s spread was 6 percent of the gross proceeds. Calculate the amount of capital funding Harper’s Dog Pens raised through this bond issue. (Enter your answer in dollars not in millions.
Dunder-Mifflin, Inc. hires an investment banker for the sale of the 600,000 bonds from Problem 4. The investment banker charges a 2% fee on each bond sold. What is the cost of debt to DMI if the following are the proceeds before the banker's fees are deducted? (Use information from the previous problem) $45,000,000? 16.38% 16.86% 15.06% 17.17% 14.12%
A6) Finance A 3% acquisition fee is paid by investors on mutual funds worth $100,000,000. The mutual fund's participation units are priced at $100,000 each. Investors sold all of their mutual ownership funds for a cost of 0.6% after 2 years, when the mutual fund price increased to $1.500/unit. How many units are the mutual earned? and what percentage of profit or loss is obtained from the sale?
3. Assume you purchased a bond for $9,186. The bond pays $300 interest every six months. You sell the bond after 18 months for $10,000. Calculate the following: a. Income. b. Capital gain (or loss). c. Total return in dollars and as a percentage of the original investment. Review Only Click the icon to see the Worked Solution. a. The current income is $ (Round to the nearest dollar.) b. The capital gain (or loss) is $ (Enter a loss as a negative number and round to the nearest dollar.) c. The total return in dollars is $ (Round to the nearest dollar.) The total return as a percentage of the original investment is %. (Enter as a percentage and round to two decimal places.)
L'Oreal (bank account at Alpha Bank) issues $60,000 face value bonds for the price of $56,000; the bonds have a four year maturity and pay $5,000 coupons once a year. A third of the bonds are bought by Alpha Bank (transaction 1) while the other two thirds are bought by SuperManage, a managed fund banking at Beta bank (transaction 2). Conclude how the stock of bank deposits and the stock of central bank deposits in the financial system have changed as a result of these two transactions. Explain your answers.
Mrs. Kate Sawyer establishes a company with $220,000 of cash. $190,000 of this cash amount is paid to a supplier for an equipment purchase. Then the company has a great opportunity to enter into a project, but it has limited cash to invest in that project. Therefore, it decides to issue bonds and shares to the investors in order to raise funds. On the bond side, the company issues a $30,000 of 3-year zero-coupon bonds. The market yield is 10%. On the share side, however, the company issues $50,000 of common stock (par value: $1 each) at a price of $2.4 .At the time of these transactions are completed, what would be the total assets of the company? A) $340,000 B) $355,080 C) $362,540 D) $370,000 E) Other (Please Specify)
An analyst following Barlow Energy has compiled the following information in preparation for additional analysis she has to include in a report she has been asked to produce (data is in hundreds of millions of $): Before-Tax Required Market Value Security Type Preferred stock Bonds Common stock Total: ● $200 $800 $600 $1,600 Bonds are trading at par Preferred share dividends: Net income available to common: • Investment in working capital: • Investment in fixed capital: Net new borrowing: Depreciation: • Tax rate: Long-term growth rate of FCFF: Long-term growth rate of FCFE: • WACC: $2,560.47 $2,784.40 $2,964.08 $3,197.15 Return. 10% 8% 13.0% $20 $135 $37 $94 $47 5% 4% $42 30% 8.925% The total value of Barlow Energy using a single-stage FCFF model is closest to:
Hector Kane HK) owns vast amounts of corporate bonds Suppose HKbuys $1,300.000 of Ovon bonds at a price of 103. The Oxon bonds pay cash interest at the annual rate of 79% and mature at the end of five years (The bonds pay cash interest annualy) How much did HK pay to purchase the bond investment? How much wi HK colect when the bond investment matures? How much cash interest will HK receive each year trom Ovon? WiI HKS annual interest revenue on the bond investment be more or less than the amount of cash interest received each year? Gve your reason. Compute HKs annual interest revenue on this bond investment. Use the straightine method to amortize the investment 1. 1. How much did HK pay to purchase the bond investment? How much will HK colect when the bond investment matures? HK paid sto purchase the bond investment HK will colect at maturity 2. How much cash interest will HK receive each year trom Con? HKw recerve annual cash interest of 5 3. W HCs annual intarest revenue on the bond…
The University Club recently issued 1,500,000 of 10-year, 9% bonds at an effective interest rate of 10%. Bond interest is payable annually. You have been asked to calculate the issuance price of the bonds and prepare amortization schedules for any discount or premium. The worksheet BONDS has been provided to assist you. Note that the worksheet contains a scratch pad at the bottom that has been preprogrammed to automatically compute and display the relevant cash flows needed for bond pricing.
Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations.1. Determine the capital structure of Executive Consultants, Inc.2. Calculate the cost of debt.3. Calculate the cost of preferred equity.
Consider the following facts to solve problems 1 through 5. A. The capital for investment of Executive Consultants, Inc. is as follows: Sources of capital Capital Debt (corporate bonds) $4,100,000 Prefferent shares $2,200,000 Common shares $2,800,000 B. To generate the $ 4.1 million of corporate bond capital, they issued bonds at $ 965 par value, with an annual coupon of $ 100 for the next 10 years, with a flotation cost of $ 10 per bond.C. The issue of preferred shares has a cost of $ 5 per share and will pay a dividend of 10% of its par value of $ 110 per preferred share.D. The risk-free rate is 3.45% and the market return is 11.25%. The company's beta coefficient is 1.23.E. Executive Consultants, Inc. has a tax liability of 35%.Problems:You must submit the procedure and all the calculations. 1. Calculate the cost of equity capital (common shares).2. Determine the weighted average cost of capital (WACC) for the firm.

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