# Consequently melrose enterprises would have 300000 in

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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...
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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.

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