Required: 1. In transaction (a), determine the present value of the debt. Note: Round your intermediate calculations and final answer to nearest whole dollar. Present value
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
Sagar 2
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On January 1, Boston Company completed the following transactions
(use a 7% annual interest rate for all transactions): (FV of $1, PV of $1,
FVA of $1, and PVA of $1)
Note: Use appropriate factor(s) from the tables provided.
a. Promised to pay a fixed amount of $6,800 at the end of each
year for seven years and a one-time payment of $116,600 at the
end of the 7th year.
b. Established a plant remodeling fund of $491,200 to be available
at the end of Year 8. A single sum that will grow to $491,200 will
be deposited on January 1 of this year.
c. Agreed to pay a severance package to a discharged employee.
The company will pay $75,800 at the end of the first year,
$113,300 at the end of the second year, and $150,800 at the end
of the third year.
d. Purchased a $174,000 machine on January 1 of this year for
$34,800 cash. A five-year note is signed for the balance. The
note will be paid in five equal year-end payments starting on
December 31 of this year.
Required:
1. In transaction (a), determine the present value of the debt.
Note: Round your intermediate calculations and final answer to nearest whole
dollar.
Present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9a031943-69df-41ae-87a0-1a65df533c3e%2F98d748b9-7508-4951-8129-aeb9ab8c5c14%2F3tv3w17_processed.jpeg&w=3840&q=75)
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