164.Balance sheet and income statement data indicate the following:
Bonds payable, 8% (issued 2000, due 2024)
|
Company A
$1,200,000
|
Company B
$900,000
|
Preferred 5% stock, $100 par(no change during year)
|
300,000
|
400,000
|
Common stock, $50 par(no change during year)
|
1,000,000
|
1,000,000
|
Income before income tax for year
|
495,000
|
130,000
|
Income tax for year
|
75,000
|
12,000
|
Common dividends paid
|
50,000
|
0
|
Preferred dividends paid
|
21,000
|
28,000
|
(a)For each company, what is the number of times bond interest charges were earned (roundto one decimal place)?
(b)Which company gives potential creditors the most protection?
165.Use the following tables to calculate the present value of a $25,000, 7%, 5-year bond that pays $1,750 ($25,000 ×
7%) interest annually, if the market rate of interest is 7%
Present Value of $1 at Compound Interest
Periods
|
5%
|
6%
|
7%
|
10%
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
2
|
0.90703
|
0.89000
|
0.87344
|
0.82645
|
3
|
0.86384
|
0.83962
|
0.81630
|
0.75132
|
4
|
0.82270
|
0.79209
|
0.76290
|
0.68301
|
5
|
0.78353
|
0.74726
|
0.71299
|
0.62092
|
6
|
0.74622
|
0.70496
|
0.66634
|
0.56447
|
7
|
0.71068
|
0.66506
|
0.62275
|
0.51316
|
8
|
0.67684
|
0.62741
|
0.58201
|
0.46651
|
9
|
0.64461
|
0.59190
|
0.54393
|
0.42410
|
10
|
0.61391
|
0.55840
|
0.50835
|
0.38554
|
Present Value of Annuity of $1 at Compound Interest
Periods
|
5%
|
6%
|
7%
|
10%
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
2
|
1.85941
|
1.83339
|
1.80802
|
1.73554
|
3
|
2.72325
|
2.67301
|
2.62432
|
2.48685
|
4
|
3.54595
|
3.46511
|
3.38721
|
3.16987
|
5
|
4.32948
|
4.21236
|
4.10020
|
3.79079
|
6
|
5.07569
|
4.91732
|
4.76654
|
4.35526
|
7
|
5.78637
|
5.58238
|
5.38929
|
4.86842
|
8
|
6.46321
|
6.20979
|
5.97130
|
5.33493
|
9
|
7.10782
|
6.80169
|
6.51523
|
5.75902
|
10
|
7.72174
|
7.36009
|
7.02358
|
6.14457
|
166.Using the following table, what is the present value of $15,000 to be received in 10 years, if the market rate is 5%compounded annually?
Periods
|
5%
|
6%
|
7%
|
10%
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
2
|
0.90703
|
0.89000
|
0.87344
|
0.82645
|
3
|
0.86384
|
0.83962
|
0.81630
|
0.75132
|
4
|
0.82270
|
0.79209
|
0.76290
|
0.68301
|
5
|
0.78353
|
0.74726
|
0.71299
|
0.62092
|
6
|
0.74622
|
0.70496
|
0.66634
|
0.56447
|
7
|
0.71068
|
0.66506
|
0.62275
|
0.51316
|
8
|
0.67684
|
0.62741
|
0.58201
|
0.46651
|
9
|
0.64461
|
0.59190
|
0.54393
|
0.42410
|
10
|
0.61391
|
0.55840
|
0.50835
|
0.38554
|
167.Using the following table, what is the present value of $40,000 to be received in 5 years, if the market rate is 7%compounded annually?
Periods
|
5%
|
6%
|
7%
|
10%
|
1
|
0.95238
|
0.94340
|
0.93458
|
0.90909
|
2
|
0.90703
|
0.89000
|
0.87344
|
0.82645
|
3
|
0.86384
|
0.83962
|
0.81630
|
0.75132
|
4
|
0.82270
|
0.79209
|
0.76290
|
0.68301
|
5
|
0.78353
|
0.74726
|
0.71299
|
0.62092
|
6
|
0.74622
|
0.70496
|
0.66634
|
0.56447
|
7
|
0.71068
|
0.66506
|
0.62275
|
0.51316
|
8
|
0.67684
|
0.62741
|
0.58201
|
0.46651
|
9
|
0.64461
|
0.59190
|
0.54393
|
0.42410
|
10
|
0.61391
|
0.55840
|
0.50835
|
0.38554
|