Question :
152. Sorenson Co., considering the following alternative plans for financing their : 1239307
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.