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# Interest Rates and the Cost of Debt

### Interest rate finding

Your child's orthodontist offers you two alternative payment plans. The first plan requires a \$4,000 immediate up-front payment. The second plan requires you to make monthly payments of \$139.68, payable at the end of each month for 3 years. What nominal and effective annual interest rate is built into the monthly payment plan?

### Effective Interest rates

East Coast Bank offers to lend you \$25,000 at a nominal rate of 7.5%, compounded monthly. The loan (principal plus interest) must be repaid at the end of the year. Midwest Bank also offers to lend you the \$25,000, but it will charge an annual rate of 8.3%, with no interest due until the end of the year. What is the difference in

### Troubled debt

What types of situations result in troubled debt? What are some of the general rules for recognizing gain or loss by both parties in a troubled debt situation? How would you report these gains or losses?

### Long-term debt analysis

How do you analyze and report long-term debt? What disclosures are required relative to long-term debt?

### Noncontrolling Interest Sections of the Work Paper

What sections of the work paper are included for noncontrolling interest? Why is the existence of noncontrolling interest significant when preparing consolidated financial statements? What are some advantages and disadvantages of the economic unit, parent organization, and proportionate consolidation concepts?

### Short-term interest rates more volatile than long-term interest

"The values of outstanding bonds change whenever the going rate of interest changes. In general, short-term interest rates are more volatile than long-term interest rates. Therefore, short-term bond prices are more sensitive to interest rate changes than are long-term bond prices." Is this statement true or false? Explain.

### Interest Rate

1) The principal plus interest at 10% compounded quarterly on a \$15000 loan made 2.5 yrs ago is due in two years. The debtor is proposing to settle the debt by a payment of \$5000 today and a a second payment in one year that will place the lender in an equivalent financial position, given that money can now only 6% compound

### Imputed Interest

Calculate imputed interest of the following debt. The question really is from the amount of this debt, what is the amount (total) is the imputed interest (not interest rate) of this debt and how do I calculate it? Also of that debt (with imputed interest amount) what portion (amount) is the short term and long term. Rate=7

### Finance: Wiley Corp Payback period; Calculate Treasury Bond interest rate risk

Question 5 Wiley Corporation is considering a project which has up-front cost paid today at t=0. The project will generate positive cash flows of \$85,000 a year at the end of each of the next five years. The project's NPV is \$100,000 and the company's WACC is 10 percent. What is the project's simple, regular payback? Questio

### 4 Multiple Choice Bond: PV, accrued interest, discount, premium, effective rate

2. The market price of a bond issued at a discount is calculated by taking the present value of its principal amount using the market (effective) rate of interest a. plus the present value of all future interest payments using the market (effective) rate of interest. b. plus the present value of all future interest payments us

### Annual coupon interest rate

Outstanding bonds have a \$1,000 par value and will mature in 5 years, yield to maturity is 9%, based on seminannual compounding, and the current market price is \$853.61, par value of \$1000. What is the bonds's annual interest rate?

### Calculations

1. Calculating the Number of Periods - You're trying to save to buy a new \$170,000 Ferrari. You have \$40,000 today that can be invested at your bank. The bank pays 5.3 percent annual interest on its accounts. (a) How long will it be before you have enough to buy the car? (b) If you believe your mutual

### Real Risk Free Rate of Interest Explanation

Treasury securities that mature in 6 years currently have an interest rate of 8.5%. Inflation is expected to be 5% each of the next three years and 6% each year after the third year. The maturity risk premium is estimated to be 0.1% (t-1), where t is equal to the maturity of the bond (i.e. the maturity risk premium of a one year

### Present Value of \$10,000 with Varying Interest Rates

What is the present value of \$10,000 received a. 12 years from today when the interest rate is 4% per year? b. 20 years from today when the interest rate is 8% per year? c. 6 years from today when the interest rate is 2% per year?

### Rate of inflation, real interest rate, tax-free investment

22. If the rate of inflation is 5%, what nominal interest rate is necessary for you to earn a 3% real interest rate on your investment? 30. You best taxable investment opportunity has an EAR of 4%. You best tax-free investment opportunity has an EAR of 3%. If your tax rate is 30%, which opportunity provides the higher af

### Stock Market Evaluation

Can you help me get started with this assignment? Briefly summarize and explain why the stock market and the interest rates might have moved in that manner on that particular date. Please see attached file(s) for complete details!

### The A. J. Croft Company (AJC) currently has \$200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are \$100,000, and it is a zero-growth company. AJC's current cost of equity is 8.8 percent, and its tax rate is 40 percent. The firm has 10,000 shares of common stock outstanding selling at a price per share of \$60.00. Now assume that AJC is considering changing from its original capital structure to a new capital structure with 50 percent debt and 50 percent equity. If it makes this change, its resulting market value would be \$820,000. What would be its new stock price per share? a. \$58 b. \$59 c. \$60 d. \$61 e. \$62

2. The A. J. Croft Company (AJC) currently has \$200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6 percent. Its earnings before interest and taxes (EBIT) are \$100,000, and it is a zero-growth company. AJC's current cost of equity is 8.8 percent, and its tax rate is 40 percent. T

### Money and Interest Rate

A borrower's guide to forecasting interest rate by Tom Woodruff 1. What major economic indicators would you examine if you were planning to make a large purchase and needed a loan. Buying a new car, business equipment or a house? 2. Describe how the federal reserve's policy makers can influence interest rates? 3. Do

### Scott Equipment Organization - Determine the expected rate of return on stockholders' equity

Can you help me get started with this assignment? Scott Equipment Organization is investigating various combinations of short- and long-term debt in financing assets. Assume the organization has decided to employ \$30 million in current assets and \$35 million in fixed assets in its operations next year, provided the level of c

### Annual Payments and Present Value

1. If a store is bought for \$100,000 and the terms are 25% down, the balance of \$75,000 to be paid off over 10 years at a 10% rate of interest on the unpaid balance, what are the 10 equal annual payments? 2. A lottery winner decides to receive \$10,000 every year forever, starting one year from today. Suppose the prize is gro

### Amount of Annual Tax Savings

1. A credit union offers a savings account with the interest rate of 6% compounded annually. If \$100 is deposited, how long does it take to triple the money if no money is ever withdrawn from the account? 2. Company X and Company Y have the same assets but different capital structures. Suppose Company X has no debt and Compan

### Compound interest on deposits

You will deposit \$2000 today. It will grow for 6 years at 10% interest compounded semiannually. You will then withdraw the funds annually over the next 4 years. the annual interest rate is 8%. What will the withdrawal be?

### Charitable Contributions/Debt: St. Jude and Universal Health Services

See attached file. Case Study - Prepare a response to each questions from the case study, "Case 3, Charitable Contributions and Debt: A Comparison of St. Jude Children's Research Hospital/ALSAC and Universal Health Services" from Chapter 5 of the text, Mastery of the Financial Accounting Research System (FARS) through Cases,

### How does the use of debt financing affect the rate of return that shareholders require on their investment in the firm's shares?

Can you help me get started on this? Write a five page paper discussing and explaining the following issues below. Remember that question 4 is the main part of the assignment; it should be roughly three pages out of your five page paper. Questions 1-3 should take up a total of around two pages. 1. What are the advanta

### Kanton Case

Please provide answers to these questions. The PDF attqached contains the information for question 3. Please do your best to answer the questions with the information provided. 1. Caron's Canoes is considering relaxing its credit standards to encourage more sales. As a result, sales are expected to increase 15 percent from

### Calculating Semi-Annual Compounded Interest

If \$4500 is deposited into an account paying 4.5% compounding semiannually, how much will you have in the account in 7 years? Round the answer to 2 decimal places. The amount in the account will be?

### Fundamental Accounting Principles: journals, bond interest, advance revenue, sales taxes, types of bonds

Fundamental Accounting Principles Assume that a company uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. A sales return for credit on account would be recorded in the: sales journal. general journal. cash receipts journal. accounts receivable le

### The capital structure decision and the cost of capital

1. What are the advantages and disadvantages of debt financing. 2. How does the use of debt financing affect the rate of return that shareholders require on their investment in the firm's shares. How does the cost of equity (i.e., the rate of return investors require on their investment in the firm's shares) change when the

### Investment with Simple Interest

Three students each have \$1000 to invest from their summer jobs. Armen invests his money in an account that earns simple interest at an APR of 5 percent. Barok invests his money in an account that earns 4.9 percent interest per year compounded annually. Carrie invests her money in an account that earns 4.8 percent interest p

### Interest, Annuities, and Amortization.

Please provide the formulas and 2 solved examples using the formulas for each of these topics: Simple interest Compound interest Future value of an annuity Present value of an annuity Amortization