Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 4, Problem 10QP
Summary Introduction
To calculate: The present value of pension liability.
Introduction:
Present value refers to the current worth of the future
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The projected benefit obligation and plan assets were $40 million and $100 million, respectively, at the beginning of the year. Due primarily to favorable stock market performance in recent years, there also was a net gain of $26 million. On average, employees’ remaining service life with the company is 10 years. As a result of the net gain, what was the increase or decrease in pension expense for the year?
($ in millions)
Net gain
Corridor amount
Excess, if any
Service period (years)
?
As the chief financial officer of Adirondack Designs, you have the following information:
Next year’s expected net income after tax but before new financing
$ 51
million
Sinking-fund payments due next year on the existing debt
$ 26
million
Interest due next year on the existing debt
$ 21
million
Common stock price, per share
$ 33.5
Common shares outstanding
31
million
Company tax rate
35%
Calculate Adirondack’s times-interest-earned ratio for next year assuming the firm raises $61 million of new debt at an interest rate of 2 percent.
Calculate Adirondack’s times-burden-covered ratio for next year assuming annual sinking-fund payments on the new debt will equal $3.0 million.
Calculate next year’s earnings per share assuming Adirondack raises the $61 million of new debt.
Calculate next year’s times-interest-earned ratio, times-burden-covered ratio, and earnings per share if Adirondack sells 2.6 million new shares at $22 a share instead of raising new debt.
The projected benefit obligation and plan assets were 200 million and 280 million, respectively, at the beginning of the year. Due primary to favorable market performance in recent years, there also was a net gain of 74 million. on average, employees remaining service life with the company is 10 years.
As a result of the net gain, what was the increase or decrease in pension expense for the year?
net gain
corridor amount
excess, if any
Service period (years)
amortization of net gain decreases pension expense by
Chapter 4 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 4.1 - Prob. 4.1ACQCh. 4.1 - Prob. 4.1BCQCh. 4.1 - In general, what is the future value of 1 invested...Ch. 4.2 - What do we mean by the present value of an...Ch. 4.2 - Prob. 4.2BCQCh. 4.2 - Prob. 4.2CCQCh. 4.2 - Prob. 4.2DCQCh. 4.3 - What is the basic present value equation?Ch. 4.3 - Prob. 4.3BCQCh. 4 - If you invest 500 for one year at a rate of 8...
Ch. 4 - Prob. 4.2CCh. 4 - Suppose you invest 100 now and receive 259.37 in...Ch. 4 - Prob. 1CTCRCh. 4 - Prob. 2CTCRCh. 4 - Prob. 3CTCRCh. 4 - Prob. 4CTCRCh. 4 - Prob. 5CTCRCh. 4 - Prob. 6CTCRCh. 4 - Prob. 7CTCRCh. 4 - Prob. 8CTCRCh. 4 - Prob. 9CTCRCh. 4 - Prob. 10CTCRCh. 4 - Prob. 1QPCh. 4 - Prob. 2QPCh. 4 - Prob. 3QPCh. 4 - Prob. 4QPCh. 4 - Prob. 5QPCh. 4 - Calculating Rates of Return. Assume the total cost...Ch. 4 - Calculating the Number of Periods. At 4.7 percent...Ch. 4 - Calculating Rates of Return. In 2014, an 1874 20...Ch. 4 - Prob. 9QPCh. 4 - Prob. 10QPCh. 4 - Calculating Present Values. You have just received...Ch. 4 - Prob. 12QPCh. 4 - Prob. 13QPCh. 4 - Prob. 14QPCh. 4 - Calculating Rates of Return. Although appealing to...Ch. 4 - Prob. 16QPCh. 4 - Prob. 17QPCh. 4 - Calculating Future Values. You have just made your...Ch. 4 - Calculating Future Values. You are scheduled to...Ch. 4 - Calculating the Number of Periods. You expect to...Ch. 4 - Calculating Future Values. You have 6,150 to...Ch. 4 - Prob. 22QPCh. 4 - Calculating the Number of Periods. You can earn...Ch. 4 - LO2 24. Calculating Present Values. You need...Ch. 4 - Prob. 25QPCh. 4 - Calculating Future Values. You have 20,000 you...
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