Bond issue costs, such as printing fees, legal fees, commissions, etc. are most appropriately accounted for by * debiting them to unamortized bond issued costs, setting them as a deferred charge on the statement of financial position and amortizing them in a manner similar to bond discount over the life of the bond. adding them to any discount on bonds or subtracting them from any premium on bonds when the bonds are sold. charging them to an expense account in the year the bonds are originally dated whether or not they are sold in that year. O charging them to expense account in the year the bonds are actually sold.

E12.4

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Problem 9-25 Fudge factors An oil company executive is considering investing $10.1 million in one or both of two wells: well 1 is expected to produce oil worth $3.01 million a year for 10 years; well 2 is expected to produce $2.01 million for 15 years. These are real (inflation-adjusted) cash flows. The beta for producing wells is 0.91. The market risk premium is 9%, the nominal risk-free interest rate is 7%, and expected inflation is 3%. The two wells are intended to develop a previously discovered oil field. Unfortunately there is still a 21% chance of a dry hole in each case. A dry hole means zero cash flows and a complete loss of the $10.1 million investment. Ignore taxes and make further assumptions as necessary. a. What is the correct real discount rate for cash flows from developed wells? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Real discount rate b. The oil company executive proposes to add 20 percentage points to the…