The company purchases a machine, its cost of $726,000 will be financed with a loan at 13.8% interest for three years that requires equal semi-annual payments (annuities) that include principal and interest. What is the amount of the payment?
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5.-
DO IT IN EXCEL, AND SHOW THE FORMULAS
The company purchases a machine, its cost of $726,000 will be financed with a loan at 13.8% interest for three years that requires equal semi-annual payments (
A) $185,674.92
B) None of these amounts
C) $311,662.13
D) $151,841.86
(Choose one option)
Step by step
Solved in 2 steps with 1 images
- Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000EQUIVALENT ANNUAL ANNUITY Faleye Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for 21,000, which will generate cash flows of 6,000 at the end of each of the next 6 years. Alternatively, the company can spend 11,000 for equipment that can be used for 3 years and will generate cash flows of 6,000 at the end of each year (System B). If the company's WACC Is 10% and both "projects" can be repeated indefinitely, which system should be chosen, and what is its EAA?Pickles R Us is a pickle farm located in the Northeast. The following transactions take place: A. On November 6, Pickles borrows $820,000 from a bank to cover the initial cost of expansion. Terms of the loan are payment due in six months from November 6, and annual interest rate of 3%. B. On December 12, Pickles borrows an additional $200,000 with payment due in three months from December 12, and an annual interest rate of 10%. C. Pickles pays its accounts in full on March 12, for the December 12 loan, and on May 6 for the November 6 loan. Record the journal entries to recognize the initial borrowings, and the two payments for Pickles.
- Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700Dexter Construction Corporation is building a student condominium complex; it started construction on January 1, Year 1. Dexter borrowed 2.5 million on January 1 specifically for the project by issuing a 10%, 5-vear, 2.5 million note, which is payable on December 31 of Year 3. Dexter also had a 12%, 5-year, 3 million note payable and a 10%, 10-year, 1.8 million note payable outstanding all year. Calculate the weighted average interest rate on the non-construction-specific debt for Year 1. RE10-9 Refer to RE10-8. In Year 1, Dexter incurred costs as follows: Calculate Dexters weighted average accumulated expenditures.REPLACEMENT CHAIN The Lesseig Company has an opportunity to invest in one of two mutually exclusive machines that will produce a product the company will need for the next 8 years. Machine A costs 8.9 million but will provide after-tax inflows of 4.5 million per year for 4 years. If Machine A were replaced, its cost would be 9.8 million due to inflation and its cash inflows would increase to 4.7 million due to production efficiencies. Machine B costs 13.9 million and will provide after-tax inflows of 4.3 million per year for 8 years. If the WACC is 9%, which machine should be acquired? Explain.
- Effective Cost of Short-Term Credit Yonge Corporation must arrange financing for its working capital requirements for the coming year. Yonge can: (a) borrow from its bank on a simple interest basis (interest payable at the end of the loan) for 1 year at a 12% nominal rate; (b) borrow on a 3-month, but renewable on rate with 12 end-of-month payments; or (d) obtain the needed funds by no longer taking discounts and thus increasing its accounts payable. Yonge buys on terms of 1/15, net 60. What is the effective annual cost (not the nominal cost) of the least expensive type of credit, assuming 360 days per year?Big Sky Mining Company must install 1.5 million of new machinery in its Nevada mine. It can obtain a bank loan for 100% of the purchase price, or it can lease the machinery. Assume that the following facts apply. (1) The machinery falls into the MACRS 3-year class. (2) Under either the lease or the purchase, Big Sky must pay for insurance, property taxes, and maintenance. (3) The firms tax rate is 25%. (4) The loan would have an interest rate of 15%. It would be nonamortizing, with only interest paid at the end of each year for four years and the principal repaid at Year 4. (5) The lease terms call for 400,000 payments at the end of each of the next 4 years. (6) Big Sky Mining has no use for the machine beyond the expiration of the lease, and the machine has an estimated residual value of 250,000 at the end of the 4th year. a. What is the cost of owning? b. What is the cost of leasing? c. What is the NAL of the lease?Using the information provided, what transaction represents the best application of the present value of an annuity due of $1? A. Falcon Products leases an office building for 8 years with annual lease payments of $100,000 to be made at the beginning of each year. B. Compass, Inc., signs a note of $32,000, which requires the company to pay back the principal plus interest in four years. C. Bahwat Company plans to deposit a lump sum of $100.000 for the construction of a solar farm In 4 years. D. NYC Industries leases a car for 4 yearly annual lease payments of $12,000, where payments are made at the end of each year.
- Now assume that it is several years later. The brothers are concerned about the firm’s current credit terms of net 30, which means that contractors buying building products from the firm are not offered a discount and are supposed to pay the full amount in 30 days. Gross sales are now running $1,000,000 a year, and 80% (by dollar volume) of the firm’s paying customers generally pay the full amount on Day 30; the other 20% pay, on average, on Day 40. Of the firm’s gross sales, 2% ends up as bad-debt losses. The brothers are now considering a change in the firm’s credit policy. The change would entail: (1) changing the credit terms to 2/10, net 20, (2) employing stricter credit standards before granting credit, and (3) enforcing collections with greater vigor than in the past. Thus, cash customers and those paying within 10 days would receive a 2% discount, but all others would have to pay the full amount after only 20 days. The brothers believe the discount would both attract additional customers and encourage some existing customers to purchase more from the firm—after all, the discount amounts to a price reduction. Of course, these customers would take the discount and hence would pay in only 10 days. The net expected result is for sales to increase to $1,100,000; for 60% of the paying customers to take the discount and pay on the 10th day; for 30% to pay the full amount on Day 20; for 10% to pay late on Day 30; and for bad-debt losses to fall from 2% to 1% of gross sales. The firm’s operating cost ratio will remain unchanged at 75%, and its cost of carrying receivables will remain unchanged at 12%. To begin the analysis, describe the four variables that make up a firm’s credit policy and explain how each of them affects sales and collections.Mohammed LLC is a growing consulting firm. The following transactions take place during the current year. A. On June 10, Mohammed borrows $270,000 from a bank to cover the initial cost of expansion. Terms of the loan are payment due in four months from June 10, and annual interest rate of 5%. B. On July 9, Mohammed borrows an additional $100,000 with payment due in four months from July 9, and an annual interest rate of 12%. C. Mohammed pays their accounts in full on October 10 for the June 10 loan, and on November 9 for the July 9 loan. Record the journal entries to recognize the initial borrowings, and the two payments for Mohammed.5.-DO IT IN EXCEL, AND SHOW THE FORMULASThe company purchases a machine, its cost of $726,000 will be financed with a loan at 13.8% interest for three years that requires equal semi-annual payments (annuities) that include principal and interest. What is the amount of the payment? A) $185,674.92 B) None of these amounts C) $311,662.13 D) $151,841.86