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The terms of the arrangement require the operator to: a. Construct a road-completing construction within two years b. Maintain and operate the road for three years c. Resurface the road at the end of Year 4 d. The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public e. The road is turn-over to the government at the end of Year 5 f. The operators determine that the implied interest rate is 24.42%. g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Contract Cost 70 Year Stand-alone selling price Construction Services 1 Forecast cost +10% 2 80 Forecast cost +20% Operation Services Road resurfacing 3-5 25 Forecast cost +30% 15 Forecast cost +10% Compute for the profit for year 2.

The terms of the arrangement require the operator to: a. Construct a road-completing construction within two years b. Maintain and operate the road for three years c. Resurface the road at the end of Year 4 d. The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public e. The road is turn-over to the government at the end of Year 5 f. The operators determine that the implied interest rate is 24.42%. g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Contract Cost 70 Year Stand-alone selling price Construction Services 1 Forecast cost +10% 2 80 Forecast cost +20% Operation Services Road resurfacing 3-5 25 Forecast cost +30% 15 Forecast cost +10% Compute for the profit for year 2.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The terms of the arrangement require the operator to: a. Construct a road-completing construction within two years b. Maintain and operate the road for three years c. Resurface the road at the end of Year 4 d. The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public e. The road is turn-over to the government at the end of Year 5 f. The operators determine that the implied interest rate is 24.42%. g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 1 70 Forecast cost +10% 2 80 Forecast cost +20% Operation Services Road resurfacing 3-5 25 Forecast cost +30% 4 15 Forecast cost +10% Compute for the profit for year 2.
Transcribed Image Text:The terms of the arrangement require the operator to: a. Construct a road-completing construction within two years b. Maintain and operate the road for three years c. Resurface the road at the end of Year 4 d. The government pays the operator P200 per year in Years 3 to 5 for making the road available to the public e. The road is turn-over to the government at the end of Year 5 f. The operators determine that the implied interest rate is 24.42%. g. The operator finances the arrangement entirely with debt. The debt proceeds are taken as the contract cost are paid. The debt is payable as follows: 75 in each of years 3 and 4 and P40 in year 5. The effective interest rate is 25.77% The operator makes the following estimates: Year Contract Cost Stand-alone selling price Construction Services 1 70 Forecast cost +10% 2 80 Forecast cost +20% Operation Services Road resurfacing 3-5 25 Forecast cost +30% 4 15 Forecast cost +10% Compute for the profit for year 2.
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