Question

1.a Sheridan Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,088,700 of 14% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 12%.

As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Selling price of the bonds = ?

1.b

Shamrock Corporation, having recently issued a $20,069,100, 15-year bond issue, is committed to make annual sinking fund deposits of $616,800. The deposits are made on the last day of each year and yield a return of 10%.

Future value of an ordinary annuity = ?

1. c Under the terms of his salary agreement, president Chris Walters has an option of receiving either an immediate bonus of $55,000, or a deferred bonus of $70,000 payable in 10 years.

Ignoring tax considerations and assuming a relevant interest rate of 4%, which form of settlement should Walters accept?

Present value of deferred bonus = ?

Answer 1