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. 

 

 

 

 

 

 

 

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