Question

In: Advanced Math

ScanSoft Development Company is developing a new process to manufacture optical disks. The development costs were...

ScanSoft Development Company is developing a new process to manufacture optical disks. The development costs were higher than expected, so ScanSoft required an immediate cash inflow of $5 200 000. To raise the required capital, the company decided to issue bonds. Since ScanSoft had no expertise in issuing and selling bonds, the company decided to work with an investment dealer. The investment dealer bought the company's entire bond issue at a discount, and then planned to sell the bonds to the public at face value or the current market value. To ensure it would raise the $5 200 000 it required, ScanSoft issued 5200 bonds with a face value of $1000 each on January 20,2016. Interest is paid semi-annually on July 20 and January 20, beginning July 20, 2016. The bonds pay interest at 5.5% compounded semi-annually.

ScanSoft directors realize that when the bonds mature on January 20, 2036, there must be $5 200 000 available to repay the bondholders. To have enough money on hand to meet this obligation, the directors set up a sinking fund using a specially designated savings account. The company earns interest of 1.6% compounded semi-annually on this sinking fund account. The directors began making semi-annual payments to the sinking fund on July 20, 2016.

ScanSoft Development Company issued the bonds, sold them all to the investment
dealer, and used the money raised to continue its research and development.

QUESTIONS

1. How much would an investor have to pay for one of these bonds to earn 4.4%
compounded semi-annually?

2. (a) What is the size of the sinking fund payment?
(b) What will be the total amount deposited into the sinking fund account would be by January 2036?
(c) How much of the sinking fund will be interest?

3. Suppose ScanSoft discovers on January 20, 2026, that it can earn 2.5% interest compounded semi-annually on its sinking fund account.
(a) What is the balance in the sinking fund after the January 20, 2026, sinking fund payment?
(b) What is the new sinking fund payment if the fund begins to earn 2.5% on January 21, 2026?
(c) What will be the total amount deposited into the sinking fund account over the life of the bonds?
(d) How much of the sinking fund will then be interest?

Solutions

Expert Solution

Colby Messinger answered 1 year ago
Next > < Previous

Related Solutions

ScanSoft Development Company is developing a new process to manufacture optical disks. The development costs were...
ScanSoft Development Company is developing a new process to manufacture optical disks. The development costs were higher than expected, so ScanSoft required an immediate cash inflow of $5 200 000. To raise the required capital, the company decided to issue bonds. Since ScanSoft had no expertise in issuing and selling bonds, the company decided to work with an investment dealer. The investment dealer bought the company's entire bond issue at a discount, and then planned to sell the bonds to...
Research and Development: The Thomas Company is in the process of developing a revolutionary new product....
Research and Development: The Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this product. As of year‐end (December 31, 2017), the product has not been manufactured for resale; however, a prototype unit was built and is in operation. Throughout 2017 the division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and...
The time and cost required to manufacture its product R&D costs were $120,000. The process was...
The time and cost required to manufacture its product R&D costs were $120,000. The process was patented. On July 1, 2016. Legal costs and fees to require the patent totaled $12,500. Browen estimated the useful life of the patent at 10 years. On July 1,2018, Browen sold the nonexclusive right to use the new process to Kennedy Company for $90,000. Because Bowen retained the patent, the agreement allows Kennedy to use, but not sell, the new technology for a period...
Exercise 10-31 Software development costs [LO10-8] Early in 2018, the Excalibur Company began developing a new...
Exercise 10-31 Software development costs [LO10-8] Early in 2018, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2018 at a cost of $11,000,000. Of this amount, $9,000,000 was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $15,000,000. During 2019, revenue of $6,000,000 was recognized. Required: 1. Prepare a journal entry to record the 2018 development costs....
A company is developing a new product. The development of the product requires an initial investment...
A company is developing a new product. The development of the product requires an initial investment of $160,000 with further investments of $90,000 in year 1, $60,000 in year 2 and $10,000 in year 3. The company will launch the product on the market in year 3 and the company expects annual profits of $60,000 from year 3 to year 7. At the end of year 7, the company expects to terminate the production line and sell it to a...
A company is considering constructing a plant to manufacture a proposed new product. The land costs...
A company is considering constructing a plant to manufacture a proposed new product. The land costs $350,000​, the building costs $500,000​, the equipment costs $250,000​, and $80,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 8 ​years, at which time the land can be sold for $350,000​, the building for $350,000​, and the equipment for $40,000.All of the working capital would be recovered at the EOY 8.The annual...
A company is considering constructing a plant to manufacture a proposed new product. The land costs...
A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000 the building costs $600,000 the equipment costs $250,000 and $100,000 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the working capital would be recovered at the end of...
Budget Development Process Describe your company’s process for developing a budget. Does your organization engage in...
Budget Development Process Describe your company’s process for developing a budget. Does your organization engage in participative budgeting? Does your company use a top-down approach? What are the pros and cons of each method?
Explain the new-product development process and product development through acquisition.
Explain the new-product development process and product development through acquisition. 
Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the...
Bentley Enterprises uses process costing to control costs in the manufacture of Dust Sensors for the mining industry. The following information pertains to operations for November. (CMA Exam adapted) Units Work in process, November 1st 16,000 Started in production during November 100,000 Work in process, November 30th 24,000 The beginning inventory was 60% complete as to materials and 20% complete as to conversion costs. The ending inventory was 90% complete as to materials and 40% complete as to conversion costs....
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT