Question

Question 40 3 pts Mason Corp. purchased equipment at a cost of $74,000. The residual value is $4,000, and annual depreciation expense is $10,000. The asset's book value at the end of the second year would be: $50,000 $54,000 O $60,000 $64,000 Question 41 3 pts Courier Logistics Corp. will issue $2,400,000 in 8-year bonds that pay 5% annually. The market rate for bonds of similar riskiness and maturity is 4%. How much cash will Courier Logistics Corp. receive from this bond issuance? $2,529,241 $2,561,585 $2,374,124 $2,400,000 D Question 42

Answer 1

Solution:
40.
	Answer is 2nd option $54,000
Working Notes:
	We will get Asset's book value at end of second year by deducting depreciation for 1st year & 2nd year from cost .
	Annual depreciation expense is $10,000 then the total depreciation for two years will
	=$10,000 for 1st year + $10,000 for 2nd year
	=$20,000
Hence	Asset's book value at end of 2nd year
	=cost - two year depreciation
	=$74,000 - $20,000
	=$54,000
41.
	Answer is 2nd option $2,561,585
Working Notes:
	Courier Logistics corp. will received cash equals to the current market value of bond issued.
	So now we will computed market value of bond issued
	Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodic YTM (for t= to t=n) + PVF for t=n @ periodic YTM x Face value of Bond
	Coupon Rate = 5%
	Face value of the bond = $2,400,000
	Annual coupon = Face value of bond x Coupon Rate = 2,400,000 x 5% = $120,000
	Market rate for bond = YTM= 4% p.a (annual)
	n= no.of coupon = No. Of years x no. Of coupon in a year
	= 8 x 1 = 8
	Bond Price = Periodic Coupon Payments x Cumulative PVF @ periodic YTM (for t= to t=n) + PVF for t=n @ periodic YTM x Face value of Bond
	= $120000 x Cumulative PVF @ 4% for 1 to 8th + PVF @ 4% for 8th period x 2400000
	= $120000 x 6.732745 + 2400000 x 0.730690
	=2,561,585.40
	=2,561,585
	so company will received 2,561,585 cash the current market value of bond issued
Cumulative PVF @ 4% for 1 to 8th is calculated = (1 - (1/(1 + 0.04)^8) ) /0.04 =6.732745
PVF @ 4% for 8th period is calculated by = 1/(1+i)^n = 1/(1.04)^8 =0.730690
Please feel free to ask if anything about above solution in comment section of the question.