Question

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of...

Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $ 1,979,000, or it can make annual payments of $ 270,300 for 15 years, each payment due on the last day of the year. Which method of payment do you recommend, assuming an expected effective interest rate of 11% during the future period?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Calculation of present value of annual payments to be made over a period of 15 Years:

a. Annual payments ,A = $ 270300

b. Rate of interest , r = 11%

c. Number of years , n = 15 years

d. PVAF = Present Value Annuity factor

Present value, PV = Annuity (A) x PVAF (r,n)

= $ 270300 x PVAF (11%, 15 years)

= $ 270300 x 7.19

= $ 1943457

Conclusion: From the above it is observed that making annual payment of $ 270300 every year over a period of 15 years is better for Sonic Foundry Corporation rather than making an immediate payment of $1979000. It results in savings in interest cost.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of...
Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,673,000, or it can make annual payments of $347,100 for 15 years, each payment due on the last day of the year. Which method of payment do you recommend, assuming an expected effective interest rate of 10% during the future period?
18.2 Acort Industries has 11 million shares outstanding and a current share price of $47 per...
18.2 Acort Industries has 11 million shares outstanding and a current share price of $47 per share. It also has long-term debt outstanding. This debt is risk free, is four years away from maturity, has an annual coupon rate of 7% , and has a $116 million face value. The first of the remaining coupon payments will be due in exactly one year. The riskless interest rates for all maturities are constant at 4.2%. Acort has EBIT of $104 million,...
The TL Corporation currently has no debt outstanding. Josh Culberson, the CFO, is considering restructuring the...
The TL Corporation currently has no debt outstanding. Josh Culberson, the CFO, is considering restructuring the company by issuing debt and using the proceeds to repurchase outstanding equity. The company's assets are worth $40 million, the stock price is $25 per share, and there are 1,600,000 shares outstanding. In the expected state of the economy, EBIT is expected to be $3 million. If there is a recession, EBIT would fall to $1.8 million and in an expansion EBIT would increase...
Alex Meir recently won a lottery and has the option of receiving one of the following...
Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $82,000 cash immediately, (2) $30,000 cash immediately and a six-period annuity of $9,000 beginning one year from today, or (3) a six-period annuity of $17,000 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) 1. Assuming an interest rate...
1.On 5/2/17, Anna Company purchased $100,000 of the 9%, 10-year bonds of Dexter Corporation for $106,247,...
1.On 5/2/17, Anna Company purchased $100,000 of the 9%, 10-year bonds of Dexter Corporation for $106,247, which provides an 8% return on annual interest payments made every 5/1.  Anna does not intend to hold the bonds until maturity, but will hold them for longer than a year.  The market value of the bonds at 12/31/17 is $106,100 and at 12/31/18 is $106,000.  On 3/1/19, Anna sells the bonds for $105,950.  What journal entries will Anna make in 2017 and 2018 to appropriately record these...
SHOW SOLUTION 13. Absolute Corporation has a capital structure that consists of 65% equity and 35%...
SHOW SOLUTION 13. Absolute Corporation has a capital structure that consists of 65% equity and 35% debt. The company expects to report P100 million in net income this year, and 67.5% of the net income will be paid out as dividends. How large can the firm's capital budget be this year without it having to include the cost of new common stock in its cost of capital analysis? a. P100.0 million b. P 67.5 million                                             c. P 50.0 million...
Q1 Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon,...
Q1 Keenan Industries has a bond outstanding with 15 years to maturity, an 8.25% nominal coupon, semiannual payments, and a $1,000 par value. The bond has a 6.50% nominal yield to maturity, but it can be called in 6 years at a price of $1,120. How much the bond is priced? (5 points) What is the bond’s nominal yield to call? (5 points) Q2: Your uncle Sam asks for your advice on the comparison of the two following bonds: Bond...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business...
COST ACCOUNTING Gizmos, Inc. incorporated and will begin operations on January 1, 2021. Its primary business is the manufacture and sale of gadgets. Because cash resources are limited, the company anticipates the need to have access to capital during the first year of operations and seeks to establish a line of credit with a local bank. The bank requires a complete operating and cash budget and pro-forma financial statements for 2021 as part of the loan application. The following information...
In 2016, Concord Trucking Company negotiated and closed a long-term lease contract for newly constructed truck...
In 2016, Concord Trucking Company negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were erected to the company’s specifications on land owned by the company. On January 1, 2017, Concord Trucking Company took possession of the lease properties. On January 1, 2017 and 2018, the company made cash payments of $ 1,109,160 that were recorded as rental expenses. Although the terminals have a composite useful life of 40 years, the...
Many bank loans are pegged to a specific interest rate, meaning the interest rate on the...
Many bank loans are pegged to a specific interest rate, meaning the interest rate on the loan could go up or down during the term of the loan as the benchmark rate changes. What is the rate that serves as a benchmark for most international companies? Federal Funds rate Horizon Value Prime Rate LIBOR With registered bonds the holder must prove US citizenship to receive coupon payments while bearer bonds can be held only by federal employees. True False If...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT