1 - Orpah, Inc. borrowed $12,000 for 4 months on a discount basis. The lender used an interest rate of 8% to calculate the discount. The amount of cash Orpah, Inc. actually had available to use from this loan was:
2 - When a company issues a bond at a premium:
the company is more profitable than most companies in its industry.
the investors' interest income will be more than the interest received each year.
investors perceive the bond to be a very safe investment.
the investors' interest income will be less than the interest received each year.
3 - The principal reason for a company having a common stock split is to:
a. increase the total cash dividends paid to stockholders.
b. decrease the market value per share of common stock.
c. capitalize retained earnings.
d. decrease total owners' equity.
1 - Interest rate for 4 months is 8%*4/12 = 2.667%
The solution answer questions related to Orpha's actual discounted cash amount; bonds at premium; reason for stock split.