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Unformatted text preview: 73 Therefore, cash outflows exceed cash inflows by $36,927.
c. Cash outflows
Posttax interest payments = [$3,000 (1 – tax rate)] 8 payments
= [$3,000 (1 – 34%)] 8 payments
= $15,840 Total principal payment = $100,000 on maturity of the bonds Total cash outflow = $15,840 + $100,000
= $115,840 Cash inflows Cash inflows = Proceeds received upon issuing the bonds
= $87,073 Therefore, cash outflows exceed cash inflows by $28,767.
d. Cash outflows
Individual posttax interest payments = $3,000 (1 – tax rate) = $1,980
Present value of posttax payments = $1,980 Present value of an ordinary annuity for i = 5% and n = 8) = $1,980 6.4632 from Table 5 in Appendix A = $12,797 Total principal payment = $100,000 on maturity of the bonds
Present value of principal payment = $67,684 [from part (a)] Total cash outflow = $12,797 + $67,684 = $80,481
Cash inflows Cash inflows = Proceeds received upon issuing the bonds = $87,073 Therefore, cash inflows exceed cash outflows by $6,592. P11–13
a. On the financial statements a capital lease is treated like the company had purchased the fixed
assets. The asset and the related liability are recorded on the balance sheet and interest and
depreciation are recorded on the income statement. An operating lease is treated like a recurring
expense each month but nothing is recorded on the balance sheet. The amount of the lease payment
is shown as an expense each month. b. A company may want to treat leases as operating leases because there is no debt that is recorded on the
balance sheet. This treatment impacts a number of financial ratios (debttoequity, for example) and so
may be to the company’s advantage to treat it like an operating lease. c. total liability ÷ total asset ratio if WalMart treats these leases as:
currently recorded: $98 ÷ $163 = 60.1%
if all leases are capital leases: $106.1 (98 + 8.1) ÷ $171.1 (163 + 8.1) = 62.0%
$3.5 ÷ $5.5 = 63.6%, 63.6% of $12.8 billion = $8.1 billion
d. An analyst needs to be able to compare companies that use di...
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This homework help was uploaded on 03/03/2014 for the course ACCT 5053 taught by Professor Staff during the Fall '08 term at Oklahoma State.
- Fall '08