On January 1, Crefax Corporation purchased a tract of land, for long-term use as a possible future AD\&J 20-110 plant site, in exchange for $50,000 cash plus a five-year note with no interest, even though the current interest for Analyzing Use of Debt similar debt is 15%.
I was reviewing the answer for this problem;
Judgment Case On January 1, Crefax Corporation purchased a tract of land, for long-term use as a possible future AD\&J 20-110 plant site, in exchange for $50,000 cash plus a five-year note with no interest, even though the current interest for Analyzing Use of Debt similar debt is 15%. The note is to be paid in $20,000 annual amounts; the first $20,000 is due one year from the to Purchase anities date of the land purchase, and the last $20,000 is due at the end of five years. The note also specifies (quite unusu- Asset L03 ally) that instead of being payable in cash, each $20,000 annual amount is to be settled by issuance of 20,000 shares of Crefax common stock, $1 par, to the holder of the note. On the date land was purchased, the fair value of the stock set aside to be issued on the five dates by Crefax Corporation was $180,000. Required a. Prepare and explain the basis for the
Would the the note payable on Jan1 year 1 not be the present value of $100,000? which would be the 20,000*5years? Why is it the PV of $150,000? Also why is the value of the land asset not the value of the Note Payable plus the cash paid? Aren't we exchanging the cash AND the Note payable for the land?
Step by step
Solved in 5 steps with 2 images
