Messier Company is a manufacturer of cycling equipment. It is facing several decisions involving time value of money considerations. Instructions Provide the requested information for (a)–(d) below. (Round all answers to the nearest dollar.) a. Messier recently signed a lease for a new office building for a lease period of 10 years. Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 10% per year. What amount will the company receive at the time the lease expires? b. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11% bonds on March 1, 2020, with principal due on March 1, 2035, and interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. Determine the selling price of the bonds. c. The company, having issued the bonds in part (b), is committed to make annual sinking fund deposits of $90,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be? d. Messier has 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its employee compensation plan. The plan will start on January 1, 2020. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). The following estimates have been collected. Average length of time to retirement 15 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement for all employees $800,000 per year On the basis of the information above, determine the present value of the pension liability. Assume payment made at the end of the year and the interest rate to be used is 8%.
Messier Company is a manufacturer of cycling equipment. It is facing several decisions involving time value of money considerations.
Instructions
Provide the requested information for (a)–(d) below. (Round all answers to the nearest dollar.)
a. Messier recently signed a lease for a new office building for a lease period of 10 years. Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 10% per year. What amount will the company receive at the time the lease expires?
b. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11% bonds on March 1, 2020, with principal due on March 1, 2035, and interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%. Determine the selling price of the bonds.
c. The company, having issued the bonds in part (b), is committed to make annual sinking fund deposits of $90,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be?
d. Messier has 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its employee compensation plan. The plan will start on January 1, 2020. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). The following estimates have been collected.
| Average length of time to retirement | 15 years |
| Expected life duration after retirement | 10 years |
| Total pension payment expected each year after retirement for all employees | $800,000 per year |
On the basis of the information above, determine the present value of the pension liability. Assume payment made at the end of the year and the interest rate to be used is 8%.
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