Question

you are the financial planner for Johnson controls. assume last years profit were 888,000.

You are the financial planner for Johnson Controls. Assume last year's profits were $880,000. The board of directors decided to forgo dividends to stockholders and retire high-interest outstanding bonds that were issued 6 years ago at a face value of $1,490,000. You have been asked to invest the profits in a bank. The board must know how much money you will need from the profits eamed to retire the bonds in 8 years. Bank A pays 6 % compounded quarterly, and Bank B pays 7 % compounded annually(use Table 1 and Table 2 provided.) (Do not round Intermediate calculations. Round your answers to the nearest dollar amount.) a-1. Which bank would you recommend? O Bank A Bank B a-2. How much of the company's profit should be placed in the bank? Profit b. If you recommended that the remaining money not be distributed to stockholders but be placed in Bank B, how much would the remaining money be worth in 8 years? Future Value $

Answer 1

Ans

A.1 Bank B is the bank in which i will recommend to invest as even the intrest is compounded quaterly in bank A but 1 % more interest offered by bank B is giving higher returns in 8 year investment period.

A.2. Dollar 867200 is the amount needed to be invested out of profit to retire debt of 1490000 as it will give return of approximate 14,90011 dollar after 8 years.

B . The future value will be 21993 dollars.Amount remaining after investment for debt would be 12800 ( 880000_867200 ) would give the above-mentioned returnes if invested with bank B.