Unit 8 Exercises.docx - Unit8Exercises William(Michael)Turner YorkvilleUniversity BUSI1043Intro. Professor:NatalieKwadrans Saturday,December1st,2018

Unit 8 Exercises.docx - Unit8Exercises...

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Unit 8 Exercises William (Michael) Turner Yorkville University BUSI 1043 – Intro. To Financial Accounting Professor: Natalie Kwadrans Saturday, December 1 st , 2018
Unit 8 Exercises 1. Journal Entries for Dundar & Mifflin 02-Jan Investment in Steve & Co. $105,000 Cash $105,000 Purchased Investment 31-Dec Investment in Steve & Co. 68,000 x 0.3 $20,400 Investment Revenue $20,400 To record investment revenue 31-Dec Cash (16000 x 0.3) $4,800 Investment in Steve & Co. $4,800 To receive cash dividend on investment 2) We need to find the present value of each payment stream in order to determine which Model is better. Model A Model B Year Payment PV Year Payment PV 1 $8,000 $7,142.86 1 $10,000 $8,928.57 2 $8,000 $6,377.55 2 $9,000 $7,174.75 3 $8,000 $5,694.24 3 $8,000 $5,694.24 4 $8,000 $5,084.15 4 $5,000 $3,177.59 5 $8,000 $4,539.42 5 $3,000 $1,702.28 $28,838.22 $26,677.43 PV = FV / (1 + i) n Model A can also be calculated as an annuity, using PV of annuity table (Exhibit 7-10) 3.605 x 8,000 = $28,840 Therefore, Dundar and Mifflin should go with Model B because the present value of the payment stream is less than Model A. They can get the printer at a lesser expense over the 5-year period. 3.
Investment in Steve & Co. (1,200 x 20.75) $24,900 Commission Expense $70 Cash $24,970 Investment in Steve & Co. 1200 shares =1.2% $1,008 84,000 x 0.012 = 1008 Investment Revenue $1,008 Cash (48,000 x 0.012) = 576 $576 Investment in Steve & Co. $576 To receive cash dividend 4) Option 1 – 3-year loan at 8% Annual Payment = 3500000 / ((1-(1+i) -n /i)) Annual Payment = 3500000 / ((1-(1+0.08) -3 /0.08)) Annual Payment = 3500000 / 2.577097 Annual Payment = $1,358,117.92 Option 2 – 4-year loan at 10% Annual Payment = 3500000 / ((1-(1+0.10) -4 )/0.1)) Annual Payment = 3500000 / 3.1698654 Annual Payment = $1,104147.83 Option 3 – 5-year loan at 12% Annual Payment = 3500000 / ((1-(1+0.12) -5 )/0.12)) Annual Payment = 3500000 / 3.6047762 Annual Payment = $970,934.06 Therefore, Dundar and Mifflin should choose loan option 3 as it presents the only annual loan payment the company can afford. (Under $1million annually).

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