b. A manufacturing company intendsto purchasenew equipmentacosting GH¢2m. The moneyrequired to buy the equipment is tobe provided asa loan by thecompany's bankers. The agreed rateof interest is 20.25 per cent perannum compounded quarterly. Theloan is repayable in full of interestat the end of 7 years. To provide forthis eventual repayment, the Boardof Directors of the company hasdecided to set aside, equal annualamount at the end of each year, andinvest in a fund which will earn 25percentperannuminterest,compounded annually. The totalamount needed in the fund to repaythe loan infive years isGHC

The sinking fund refers to the fund arrangement which is made to arrange future payments. In this…

Answered: b. A manufacturing company intends to…

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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Question A company owes 500 and 1000 to be paid at the end of year one and year four, respectively. The company will set up an investment program to match the duration and the present value of the above obligation using an annual effective interest rate of 10%. The investment program produces asset cash flows of X today and Y in three years. Calculate X and determine whether the investment program satisfies the conditions for Redington immunization. Possible Answers A B C D X = 75 and the Redington immunization conditions are not satisfied. X = 75 and the Redington immunization conditions are satisfied. X = 1138 and the Redington immunization conditions are not satisfied. X = 1138 and the Redington immunization conditions are satisfied. E X = 1414 and the Redington immunization conditions are satisfied.
On 1 April 2020, Apollo Berhad made a RM1,000,000 loan from the bank at an interest rate of10 percent, equal to its effective interest rate for the development of the company's power generation facilities. On 1 April, the loan was obtained and RM300,000 was used on qualifying properties. On 1 April, the company deposited the remaining balance at a rate of 6% per annum in a bank yielding interest.On 31 December 2020, when the construction was finished and ready for use, the full amount was withdrawn and paid to the contractor. On 31 March 2021, the company returned the loan to the bank. As of 1 April 2021, power generation facilities were eligible for use in the undertaking. Requirement : (a) Calculate the net borrowing cost that should be capitalised as part of the cost of the new store and the finance cost that should be reported in the income statement for the year ended 31 March 2021. (b) Show the extracts from the income statement for the year ended 31 March 2021 and the statement…
A corporation has decided to use borrowed capital to finance a portion of an equipment purchase. The equipment will be partially financed by borrowing $40,000 on a 2-year contract at 7% interest compounded annually, with the loan to be repaid in two equal EOY installments. The average inflation rate during this period is expected to be 2%. Determine the loan payment amount.
Ontario Credit Union borrowed $275,000 at 9.5% compounded semi-annually from League Central to build an office complex. The loan agreement requires payment of interest at the end of every 6 months In addition, the credit union is to make equal payments into a sinking fund so that the principal can be retired in total after 20 years Interest earned by the fund is 8% compounded semi-annually (a) What is the semi-annual interest payment on the debt? (b) What is the size of the semi-annual deposits into the sinking fund? (c) What is the total annual cost of the debt? (d) What is the interest earned by the fund in the 32nd payment interval? (e) What is the book value of the debt after 16 years? (f) Prepare a partial sinking fund schedule showing details, including the book value of the debt, for the first three payments, the last three payments, and the totals. (a) The interest payment is $ (Round the final answer to the nearest dollar as needed. Round all intermediate values to six decimal…
A student loan is offered under the following conditions: credit of 30, 000 euros at 3% over a period of 6 years contracted on June 1, 2020; no repayment or interest payments for 2 years; The re-payment is provided in 4 constant annual instalments paid on June 1st for the following 4 years. a) Calculate the constant annuities of this credit. b) Draw the amortization table Years (payment in June) Principal repaid Interest paid Annual payments outstanding capital
A firm purchases 150 acres of land for $195,000 and agrees to remit 17 equal annual end-of-year installments of $25,831.94 each. What is the true annual interest rate on this loan?
A company buys a machine for $18,000, which it agrees to pay for in five equal annual payments, beginning one year after the date of purchase, at an annual interest rate of 7%. Immediately after the second payment, the terms of the agreement are changed to allow the balance due to be paid off in a single payment the next year. What is the final single payment? Solution: 1. Draw the CFD by yourself; 2. First, calculate annual payment amount for the first 2 years: O A= + 7%, • )=18000x =$ o The final payment is the • worth of the : unpaid payments. 3. Second, Calculate the single payment amount due at the end of the 3rd year: F=S
1. A loan of Php 40,000.00 with interest rate of 15% compounded biannually, is to be discharged by a series of 10 payments twice a year. The first payment to be made 6 months after the loan is finalized. The first 6 payments are worth Php 6000.00 each, while the remaining will be equal in amounts such that the final payment will liquidate the loan. What is the amount of the remaining payments? 2. Using the same information above, but the payment is uniform and the number of period is extended by half, how much would each payment be?
(a) To upgrade its vehicles, the project Insignia is considering undertaking, the company is exploring the option of obtaining the $10,000,000 required via a loan from its bank for a term of 4 years, at an interest rate of 12% per annum. Monthly payments are expected to be made on the loan. Required: i. Calculate Insignia Corp.'s monthly payment on this loan. ii. Prepare the company's Amortization Schedule for the first three (3) months of this loan, clearly showing the interest and principal payments.
4. ALDA Investments makes a sale of equipment for a value of L 250,000.00 where the cancellation is negotiated through 3 payments, which are paid 1, 2 and 3 months after the purchase, if a rate of 18% per year capitalizable per month is negotiated What is the value of the payments if: a)Each one is 15% larger than the previous one. b)The last two are equal to each other and the first is equal to the sum of the two.
On January 1, a company agrees to pay $28,000 in nine years. If the annual interest rate is 3%, determine how much cash the company can borrow with this agreement. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

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