1) Dobson Contractors is considering buying equipment at a cost of $75,000. The
equipment is expected to generate cash flows of $15,000 per year for eight years and
can be sold at the end of eight years for $5,000. The discount rate is 12%. Assume the
equipment would be paid for on the first day of year one, but that all other cash flows
occur at the end of the year. Ignore income tax considerations. Determine if Dobson
should purchase the machine.
2) Pizza Pier issues 7%, 10-year bonds with a face amount of $80,000 on January 1,
2015 . The market interest rate for bonds of similar risk and maturity is also 7%.
Interest is paid semiannually on June 30 and December 31 .
1> Record the bond issue.
2> Record the first interest payment on June 30, 2015 .
3) Price Mart is considering outsourcing its billing operations. A consultant estimates
that outsourcing should result in after-tax cash savings of $9,000 the first year, $15,000
for the next two years, and $18,000 for the next two years. Assuming a 12% discount
rate, calculate the total present value of the cash flows.
4) The Bomb Pop Corporation sold ice cream equipment for $16,000. They originally
purchased the equipment for $40,000, and depreciation through the date of sale totaled
$25,000. What was the gain or loss on the sale of the equipment? Record the sale of the
equipment.
5) On May 1, 2015, a company lends $100,000 to one of its main suppliers and accepts
a 12-month, 6% note. Record the acceptance of the note on May 1, 2015, the
adjustment on December 31, 2015, and the cash collection on May 1, 2016 .
6) On January 1, 2015, Ripstick Park issues $800,000 of 8% bonds, due in ten years,
with interest payable semiannually on June 30 and December 31 each year. Assuming
the market interest rate on the issue date is 8%, the bonds will issue at $800,000.
Record the bond issue on January 1, 2015, and the first two semiannual interest
payments on June 30, 2015, and December 31, 2015 .
7) Anthony would like to have $18,000 to buy a new car in three years. Currently, he
has saved $15,000. If he puts $15,000 in an account that earns 6% interest, compounded
annually, will he be able to buy the car in three years?