Consequently melrose enterprises would have 300000 in

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ically classified as current liabilities. Consequently, Melrose Enterprises would have $300,000 in current liabilities and $300,000 in long­term liabilities for total liabilities of $600,000, and it would have $450,000 in stockholders' equity, which means that the company could borrow a total of $900,000 without violating its debt covenant. Consequently, Melrose Enterprises could borrow an additional $300,000. Declaring but not paying the dividend, as opposed to declaring and paying the dividend, reduced the amount of money that the company could borrow on a dollar­for­dollar basis. E11–2 a. 1/1/11 1/1/12 1/1/13 1/1/14 1/1/15 $30,000 $30,000 $30,000 $30,000 1/1/16 $30,000 $300,000 b. All dollar amounts on the time line below are in thousands of dollars. 1/11 7/11 $15 1/12 $15 7/12 $15 1/13 $15 7/13 $15 1/14 $15 7/14 $15 1/15 $15 7/15 $15 1/16 $15 $300 c. Total Present Value = Present Value of Face Value + Present Value of Periodic Interest Payments (1 ) Annual interest payments: Total Present Value = ($300,000 Present Value Factor for i = 10% and n = 5) + ($30,000 Present Value Factor of an Ordinary Annuity Factor for i = 10% and n = 5) = ($300,000 .62092 from Table 4, Appendix A) + ($30,000 3.79079 from Table 5, Appendix A) = $186,276 + $113,724 = $300,000 (2 ) Semiannual interest payments: Total Present Value = ($300,000 Present Value Factor for i = 5% and n = 10) + ($15,000 Present Value Factor of an Ordinary Annuity Factor for i = 5% and n = 10) = ($300,000 .61391 from Table 4, Appendix A) + ($15,000 7.7218 from Table 5, Appendix A) = $184,173 + $115,827 = $300,000 E11–3 1 2 3 4 Par value Discount Premium Premium E11–4 Present Value = Present Value of Face Value + Present Value of Interest Payments Note 1 Present Value Note 2 Present Value Note 3 Present Value Note 4 Present Value Note 5 Present Value = ($1,000 Present Value Factor for i = 8% and n = 4) + [($1,000 0%) Present Value of an Ordinary Annuity Factor for i = 8% and n = 4] = $1,000 .7350 (from Table 4 in Appendix A) + $0 = $735.00 = ($5,000 Present...
View Full Document

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.

Ask a homework question - tutors are online