Cambridge College

(This is a variation Problem 6–11 focusing on compounding periods of varying length.) Benning Manufacturing Company is negotiating with a customer for the lease of a large machine manufactured by Benning. The machine has a cash price of $800,000. Benning wants to be reimbursed for financing the machine at a 12% annual interest rate over the five-year lease term. Required: 1. Determine the required lease payment if the lease agreement calls for 10 equal semiannual payments beginning six mont...

On the last day of its fiscal year ending December 31, 2013, the Sedgwick & Reams (S&R) Glass Company completed two financing arrangements. The funds provided by these initiatives will allow the company to expand its operations. 1. S&R issued 8% stated rate bonds with a face amount of $100 million. The bonds mature on December 31, 2033 (20 years). The market rate of interest for similar bond issues was 9% (4.5% semiannual rate). Interest is paid semiannually (4%) on June 30 and December 31, beg...

The Damon Investment Company manages a mutual fund composed mostly of speculative stocks. You recently saw an ad claiming that investments in the funds have been earning a rate of return of 21%. This rate seemed quite high so you called a friend who works for one of Damon’s competitors. The friend told you that the 21% return figure was determined by dividing the two-year appreciation on investments in the fund by the average investment. In other words, $100 invested in the fund two years ago...

Harvey Alexander, an all-league professional football player, has just declared free agency. Two teams, the San Francisco 49ers and the Dallas Cowboys, have made Harvey the following offers to obtain his services: 49ers: $1 million signing bonus payable immediately and an annual salary of $1.5 million for the five-year term of the contract. Cowboys: $2.5 million signing bonus payable immediately and an annual salary of $1 million for the five-year term of the contract. With both contracts, the...

Hughes Corporation is considering replacing a machine used in the manufacturing process with a new, more efficient model. The purchase price of the new machine is $150,000 and the old machine can be sold for $100,000. Output for the two machines is identical; they will both be used to produce the same amount of product for five years. However, the annual operating costs of the old machine are $18,000 compared to $10,000 for the new machine. Also, the new machine has a salvage value of $25,000, b...

Johnson & Johnson is one of the world’s largest manufacturers of health care products. The company’s 2010 financial statements included the following information in the long-term debt disclosure note: The disclosur note stated that the debenture bonds were issued early in 2000 and have a maturity value of $272.5 million. The maturity value indicates the amount that Johnson & Johnson will pay bondholders in 2020. Each individual bond has a maturity value (face amount) of $1,000. Zero-coup...

Delta Airlines provides scheduled air transportation services in the United States. Like many airlines, Delta leases many of its planes from Boeing Company . In its long-term debt disclosure note included in the financial statements for the year ended December 31, 2010, the company listed $738 million in lease obligations. The existing leases had an approximate seven-year remaining life and future lease payments average approximately $153 million per year. Required: 1. Determine the effective ...

Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following: Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years the machine can be sold for $5,000. Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs of $4,000 in year ...

An investment product promises to pay $25,458 at the end of nine years. If an investor feels this investment should produce a rate of return of 14 percent, compounded annually, what’s the most the investor should be willing to pay for the investment?

On January 1, 2013, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note requiring payment of $60,000 annually for seven years. The first payment was made on January 1, 2013. The prevailing rate of interest for this type of note at date of issuance was 10%. Information on present value factors is as follows: Ott should record sales revenue in January 2013 of a. $214,200 b. $261,600 c. $292,600 d. $321,600