1 A company must repay the bank a single payment of 27000 ca

1/ A company must repay the bank a single payment of $27,000 cash in 6 years for a loan it entered into. The loan is at 10% interest compounded annually. The present value factor for 6 years at 10% is .5645. The present value of an annuity factor for 6 years at 10% is 4.3553. The present value of the loan (rounded) is:

Multiple Choice

$15,242.

$27,000.

$17,208.

$6,199.

$117,593.

2/ On January 1 of Year 1, Congo Express Airways issued $3,100,000 of 7% bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $2,830,000 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized at a rate of $9,000 every six months. After accruing interest at year end, the company\'s December 31, Year 1 balance sheet should reflect total liabilities associated with the bond issue in the amount of:

Multiple Choice

$3,460,500.

$2,848,000.

$2,739,500.

$3,352,000.

$2,956,500.

Solution

1 The present value of the loan = 27000*0.5645= 15242 2 Total liabilities associated with the bond issue =(3100000*7%/2)+(2830000+9000+9000)= 2956500