Chapter 11 sample test

# Chapter 11 sample test - Chapter 11 sample test 1 The First...

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Chapter 11 sample test 1. The First Corporation issued a \$1,000, 6%, 10-year bond on January 1. Calculate the total cash amount the corporation will pay out over the life of the bond. The key to this problem is to recognize that over the life of a bond, a company's cash payments consist of the bond principal and interest. The company's total cash payments will be \$1,600. Bond principal \$1,000 Bond interest (\$1,000 x .06 x 10) \$600 Total cash payments \$1,600 See text exercise 11.1 for similar material. 2. Calculate the Second Corporation’s 3-year cost of borrowing for the following bond: \$2,000 principal, 7% annual interest, 3-year life. Cash received by the corporation when it issued the bond was \$2,000. The key to this problem is to recognize that the total cost of borrowing is the difference between the cash paid out over the life of a bond and the cash received when the bond is issued. The company's 3-year cost of borrowing will be \$420. Note the bond was issued at its principal amount. Cash receipts \$2,000 Cash payments Bond principal \$2,000 Bond interest (\$2,000 x .07 x 3) \$420 Total cash payments \$2,420 3-year cost of borrowing \$420 See text exercise 11.2 for similar material. 3. Calculate the Third Corporation’s 3-year cost of borrowing for the following bond: \$3,000 principal, 7% annual interest, 3-year life. Cash received by the corporation when it issued the bond was \$3,100. The key to this problem is to recognize that the total cost of borrowing is the difference between the cash paid out over the life of a bond and the cash received when the bond is issued. The company's 3-year cost of borrowing will be \$530. Note the bond was issued at a \$100 premium. Cash receipts \$3,100 Cash payments Bond principal \$3,000 Bond interest (\$3,000 x .07 x 3) \$630 Total cash payments \$3,630 3-year cost of borrowing \$530

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See text exercise 11.2 for similar material. 4. Calculate the Fourth Corporation’s 3-year cost of borrowing for the following bond: \$4,000 principal, 7% annual interest, 3-year life. Cash received by the corporation when it issued the bond was \$3,800. The key to this problem is to recognize that the total cost of borrowing is the difference between the cash paid out over the life of a bond and the cash received when the bond is issued. The company's 3-year cost of borrowing will be \$1,040. Note the bond was issued at a \$200 discount. Cash receipts \$3,800 Cash payments Bond principal \$4,000 Bond interest (\$4,000 x .07 x 3) \$840 Total cash payments \$4,840 3-year cost of borrowing \$1,040 See text exercise 11.2 for similar material. 5. On May 1, the Fifth Corporation issued a \$5,000, 12%, 5-year bond and received \$5,000. Interest on the bond is to be paid every six months beginning on November 1. Calculate the Fifth Corporation’s monthly cost of borrowing by issuing the bond.
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## This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter 11 sample test - Chapter 11 sample test 1 The First...

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