A small industrial contractor purchased a warehouse building for storing equipment and materials that are not immediately needed at construction job sites. The cost of the building was $100,000 and the contractor made an agreement with the seller to finance the purchase over a 5-year period. The agreement stated that monthly payments stated that monthly payments would be made based on a 30-year amortization, but the balance owed at the end of year 5 would be paid in a lump-sum balloon payment. What was the size of the balloon payment if the interest rate on the loan was 6% per year, compounded monthly?

A small industrial contractor purchased a warehouse building for storing equipment and materials that are not immediately needed at construction job sites. The cost of the building was $100,000 and the contractor made an agreement with the seller to finance the purchase over a 5-year period. The agreement stated that monthly payments stated that monthly payments would be made based on a 30-year amortization, but the balance owed at the end of year 5 would be paid in a lump-sum balloon payment. What was the size of the balloon payment if the interest rate on the loan was 6% per year, compounded monthly?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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7) Crass Spray Inc. (CSI) purchased equipment costing $60,000 on September 1, 2023. CSI made a $20,000 down payment and took out a loan for the remaining amount. Other cash expenditures related to this purchase included: Insurance during shipping: $500 Annual insurance policy: $2,400 Installation and testing costs: $600 Staff training costs on how to run the new equipment: $700 Required Determine the cost of the new equipment and record all required journal entries related to this equipment (you can ignore depreciation expense for the year).
Keating Co. is considering disposing of equipment with a cost of $52,000 and accumulated depreciation of $36,400. Keating Co. can sell the equipment through a broker for $33,000 less 10% commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $47,000. Keating will incur repair, insurance, and property tax expenses estimated at $10,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is: A. $8,760 B. $5,110 C. $10,950 D. $7,300
On January 1st, 2008, ABC Inc. purchased a copper mine for $400,000. The company is required by provincial law to restore the land on which the mine is located to its initial condition at the end of the mine's ten year useful life. Restoration costs are estimated to be $35,000. ABC is subject to an interest rate of 5%. Prepare the journal entries required on January 1st and December 31st, 2008. Round all entries to the nearest dollar.
Winett Corporation is considering an investment in special-purpose equipment to enable the company to obtain a four-year municipal contract. The equipment costs $291,000 and would have no salvage value when the contract expires at the end of four years. Estimated annual operating results of the project are as follows. Revenue from contract sales Expenses other than depreciation Depreciation (straight-line basis) Increase in net income from contract work $211,000 72,750 All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Winett's proposal to undertake this contract. a. Payback period b. Return on average investment c. Net present value $308,000 283,750 $ 24,250 a. Payback period. b. Return on average investment. (Round your percentage answer to 1 decimal place (i.e., 0.123 to be entered as 12.3).) c. Net present value of the proposal to undertake contract work,…
Keating Co. is considering disposing of equipment with a cost of $74,000 and accumulated depreciation of $51,800. Keating Co. can sell the equipment through a broker for $33,000, less a 7% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $49,000. Keating will incur repair, insurance, and property tax expenses estimated at $12,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is Oa. $4,417 Ob. $7,572 Oc. $9,465 Od. $6,310 Previous Next 7:36 PM 12/13/2020 CP DELL
Lucky Strike, a bowling alley, purchased new equipment from Brunswick in the amount of $850,000. Brunswick is allowing Luck Strike me to amortize the cost of the equipment with monthly payments over 2 years at 12% interest. What equal monthly payment will be required to amortize this loan?
Los Altos, Inc. obtained a patent for a new optical scanning device. The fees incurred to file for the patent and to defend the patent in court against several companies that challenged the patent amounted to $45,000. Los Altos, Inc. concluded that the expected economic life of the patent was 12 years. Calculate the amortization expense that should be recorded in the second year. $ 0
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Covidam Company clinches a contract to supply cleaning services to a nursing home for the next 5 years. Under the contract, the Company will be paid $1 million a year. To take up this contract, it would have to invest in new cleaning equipment costing $600,000 which will be depreciated straight line to zero over 5 years. There is no salvage value at the end of 5 years. Labour cost will be $300,000 per year and overheads $250,000per year. The Company will need to invest in net working capital of $350,000. It plans to issue $1 million worth of bonds for 5 years at a coupon rate of 6% and will price the bonds at par. The Company has an existing bank loan of $9 million. The cost of debt from the bank loan is the same as the bonds. The common stock of the Company is selling for $10 per share and it has 2 million shares outstanding. Expected dividend next year is $1 per share and dividends are expected to grow at 2% per annum into the foreseeable future. The tax rate is 20%.(a) Determine the…
Covidam Company clinches a contract to supply cleaning services to a nursing home for the next 5 years. Under the contract, the Company will be paid $1 million a year. To take up this contract, it would have to invest in new cleaning equipment costing $600,000 which will be depreciated straight line to zero over 5 years. There is no salvage value at the end of 5 years. Labour cost will be $300,000 per year and overheads $250,000 per year. The Company will need to invest in net working capital of $350,000. It plans to issue $1 million worth of bonds for 5 years at a coupon rate of 6% and will price the bonds at par. The Company has an existing bank loan of $9 million. The cost of debt from the bank loan is the same as the bonds. The common stock of the Company is selling for $10 per share and it has 2 million shares outstanding. Expected dividend next year is $1 per share and dividends are expected to grow at 2% per annum into the foreseeable future. The tax rate is 20%. 1. Calculate…

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