Question

James Corporation is planning to issue bands with a face value of $504,500 and a coupon rate of 6 percent. The bonds mature in 10 years and pay interest semiannually every June 30 and Decamber 31. All of the bonds will be sold on January 1 of this year. (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answer to whole dollars.) Required: Compute the Issue (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 4 percent. b. Case B: Market interest rate (annual): 6 percent. c. Case C: Market interest rate (annual): 8.5 percent. Rosh Corporation is planning to issue bonds with a face value of S810,000 and a coupon rate of 8 peroent. The bands mature in four years and pay interest semiannually every June 30 and December 31. All of the bonds will be sold on January 1 of this year. (FV of S1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided. Round your final answers to whole dollars.) Required Compute the issue (sale) price on January 1 of this year for each of the following independent cases: a. Case A: Market interest rate (annual): 8 percent. b. Case B: Market interest rate (annual): 6 percent Issue c. Case C: Market interest rate (annual) 10 percent. Oak Corporation's financial statements for the current year showed the following: (Round your answers to 2 decimal place.) Income Statement Revenues Expenses Interest expense Pretax income Income tax (30%) Net income $950,000 (650,000) (20,100) 279,900 (83,970) $195,930 Compute Oak's times interest earned ratio. me interest earned ratio Last year, Arbor Corporation reported the following: Balarice Sheet Tolal Assets Total Llabll Total Shareholders' Equity $890,000 560,000 $ 330,000 ties This year, Arbor is considering whether to issue more debt to fund a $100,000 project or to issue additional shares of common stock, Both options will bring in exactly $100,000. Arbor's current debt contracts contain a debt covenant that requires it to maintain a debt-to-equity ratio of 2.00 or less. Required: 1. Calculate Arbor's current debt-to-equity ratio. (Round your answer to 2 decimal places.) Curent doo o-equly rusio debt-lo- 2. Calculate Arbor's debl-to-equity ratio assuming it funds the project using additional debt. (Round your answer to 2 decimal places.) ratio 3. Calculate Arbor's debt-to-equity ratio assuming it funds the pro by ssuing common stock. (Round your answer to 2 decimal places.) ratio

Answer 1

As per HOMEWORKLIB RULES, we are required to answer the first one question if multiple independent questions are given. So we have answered the first one. Hope you understand as we are to comply guidelines.

Determination of Issue Price of Bonds on January 1 of this year :-
Face Value of Bonds	=	$504,500
Life of Bond (in years)	=	10
Maturity amount of Bond		$504,500
Coupon rate	=	6% per year payable semi annually i.e. 3% per semi annual
Semi annual Coupon Amount	=	$504,500	×	3%
	=	$15,135		This will be paid 20 times
n	=	10 years i.e. 10 * 2 = 20 semi annuals
Case A :	Market Interest Rate (annual) : 4 percent
Market rate on similar bonds (r)	=	4%
	=	2% semi annual
PVAF(r, n)	=	Present Value Annuity factor at r% for n periods
Present Value of an Annuity of $1 at 2% for 20 periods	=	16.3514333
PVIF(r, n)	=	Present Value interest factor at r% for n periods
Present Value of $1 at 2% at n= 20 periods	=	0.6729713
Price of Bond	=	Coupon Amount * PVAF(r,n)	+	Redemption Amount * PVIF(r,n)
	=	$15135* 16.3514333	+	$504500* 0.6729713
	=	$247,479	+	$339,514
	=	$586,993
Case B :	Market Interest Rate (annual) : 6 percent
Market rate on similar bonds (r)	=	6%
	=	3% semi annual
PVAF(r, n)	=	Present Value Annuity factor at r% for n periods
Present Value of an Annuity of $1 at 3% for 20 periods	=	14.8774749
PVIF(r, n)	=	Present Value interest factor at r% for n periods
Present Value of $1 at 3% at n= 20 periods	=	0.5536758
Price of Bond	=	Coupon Amount * PVAF(r,n)	+	Redemption Amount * PVIF(r,n)
	=	$15135* 14.8774749	+	$504500* 0.5536758
	=	$225,171	+	$279,329
	=	$504,500
Case C :	Market Interest Rate (annual) : 8.5 percent
Market rate on similar bonds (r)	=	8.5%
	=	4.25% semi annual
PVAF(r, n)	=	Present Value Annuity factor at r% for n periods
Present Value of an Annuity of $1 at 4.25% for 20 periods	=	13.2943658
PVIF(r, n)	=	Present Value interest factor at r% for n periods
Present Value of $1 at 4.25% at n= 20 periods	=	0.4349895
Price of Bond	=	Coupon Amount * PVAF(r,n)	+	Redemption Amount * PVIF(r,n)
	=	$15135* 13.2943658	+	$504500* 0.4349895
	=	$201,210	+	$219,452
	=	$420,662

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