Exam 14: Planning Debt Financing

Once the capital budgeting decision has identified the asset the firm wants to acquire and the decision is made to use debt financing,how does the firm decided between a non-interest bearing note,an installment note,or an interest bearing note?

(Essay)

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Question 21

Which of the following statements about convertible bonds is/are true?

(Multiple Choice)

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Question 22

The carrying value of a $500,000,4 year note with an 8 percent face rate (paid semiannually)that was issued to yield a 7 percent market rate is $515,286.36.What is the interest expense for the next interest period?

(Multiple Choice)

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Question 23

A firm that makes extensive use of long-term liabilities to meet its financing needs is

(Multiple Choice)

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Question 24

A $1,000 bond with a quoted price of 97 3/4 is selling for:

(Multiple Choice)

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Question 25

Match the following terms with the descriptions below.

The cash raised by issuing a note.

Lump-sum payment note

The amount the borrower will repay the lender for principal.

Holder of the note

A note with periodic payments based on a face rate and a promise to pay a final lump-sum at the maturity date.

Face rate on the note

Correct Answer:

Verified

The cash raised by issuing a note.

The amount the borrower will repay the lender for principal.

A note with periodic payments based on a face rate and a promise to pay a final lump-sum at the maturity date.

When the present value or cash proceeds of a note exceeds the face value of the note.

A long-term note secured with real estate.

Also known as a noninterest bearing note.

The interest rate used to determine the cash interest paid by the note.

The liability of a note at a specified time.

A lender

Also known as an installment note.

The excess of the face value over the proceeds of the note.

The assets named in the debt agreement that the lender can have if the borrower fails to comply with the terms of the note.

The actual interest rate charge on the proceeds of a note.

The borrower who signs the note.

(Matching)

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Question 26

When a note is issued at a discount which of the following is not true?

(Multiple Choice)

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Question 27

On November 1,2010 Michigan Iron works arrange to purchase a $150,000 piece of equipment by making a 20 percent down payment and signing a three-year installment loan contract with interest at 8 percent per year for the balance.The loan is to be repaid in semiannual installments starting on May 1,2011. Required: (A.)How much cash will the company pay out in 2010? Where will the cash outflows appear in the financial statements? (B.)How much interest expense will the company incur from November 1,2010 to November 1,2011? (C.)How much of the debt will be reduced in the first year of the note? (D.)How will the installment note be reported on the balance sheet on December 31,2010?

(Essay)

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Question 28

Cabal Company issued debentures with a face interest rate of 6 percent and a market interest rate of 5 percent.How will interest expense compare to the cash interest paid each period?

(Multiple Choice)

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Question 29

A bond issue which specifies that certain portions of the total bond issue are due periodically over the life of the bond is called a:

(Multiple Choice)

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Question 30

"Obviously,there is no interest expense on a non-interest-bearing note".Is this statement accurate? Explain.

(Essay)

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Question 31

Spurt Company issued a 3-year,non-interest-bearing note on January 1,2010.At what amount should the note be reported on the December 31,2010,balance sheet?

(Multiple Choice)

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Question 32

When the market rate of interest is less than a note's face rate of interest:

(Multiple Choice)

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Question 33

Glenda Corp obtained a loan that only required the company to make only payment at the end of 5 years.This is an example of:

(Multiple Choice)

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Question 34

Bonds with a face interest rate receive cash proceeds equal to the present value of the

(Multiple Choice)

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Question 35

When the market rate of interest is less than the note's face rate of interest which of the following is not true?

(Multiple Choice)

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Question 36

Grainfield Corporation first payment on an 8 percent,$40,000,10 year installment,that has quarterly payments is $1,462.23.How much of this first payment is interest?

(Multiple Choice)

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Question 37

Which of the following is NOT a true statement about bonds?

(Multiple Choice)

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Question 38

Which of the following is not true about a capital lease?

(Multiple Choice)

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Question 39

If Walker Corporation issues a $1,000,000 three-year noninterest bearing note how much cash will it receive if the interest rate is 10 percent compounded semiannually?

(Multiple Choice)

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Question 40

Showing 21 - 40 of 74

Once the capital budgeting decision has identified the asset the firm wants to acquire and the decision is made to use debt financing,how does the firm decided between a non-interest bearing note,an installment note,or an interest bearing note?

Which of the following statements about convertible bonds is/are true?

The carrying value of a $500,000,4 year note with an 8 percent face rate (paid semiannually)that was issued to yield a 7 percent market rate is $515,286.36.What is the interest expense for the next interest period?

A firm that makes extensive use of long-term liabilities to meet its financing needs is

A $1,000 bond with a quoted price of 97 3/4 is selling for:

When a note is issued at a discount which of the following is not true?

Cabal Company issued debentures with a face interest rate of 6 percent and a market interest rate of 5 percent.How will interest expense compare to the cash interest paid each period?

A bond issue which specifies that certain portions of the total bond issue are due periodically over the life of the bond is called a:

"Obviously,there is no interest expense on a non-interest-bearing note".Is this statement accurate? Explain.

Spurt Company issued a 3-year,non-interest-bearing note on January 1,2010.At what amount should the note be reported on the December 31,2010,balance sheet?

When the market rate of interest is less than a note's face rate of interest:

Glenda Corp obtained a loan that only required the company to make only payment at the end of 5 years.This is an example of:

Bonds with a face interest rate receive cash proceeds equal to the present value of the

When the market rate of interest is less than the note's face rate of interest which of the following is not true?

Grainfield Corporation first payment on an 8 percent,$40,000,10 year installment,that has quarterly payments is $1,462.23.How much of this first payment is interest?

Which of the following is NOT a true statement about bonds?

Which of the following is not true about a capital lease?

If Walker Corporation issues a $1,000,000 three-year noninterest bearing note how much cash will it receive if the interest rate is 10 percent compounded semiannually?

Accounting and Business

Business Processes and Accounting Information

Operating Processes: Planning and Control

Short-Term Decision Making

Strategic Planning Regarding Operating Processes

Planning, The Balanced Scorecard, and Budgeting

Accounting Information Systems

Purchasinghuman Resourcespayment Process: Recording and Evaluating Expenditure Process Activities

Recording and Evaluating Conversion Process Activities

Recording and Evaluating Revenue Process Activities

Time Value of Money

Planning Investments: Capital Budgeting

Planning Equity Financing

Recording and Evaluating Capital Resource Process Activities: Financing

Recording and Evaluating Capital Resource Process Activities: Investing

Company Performance: Profitability

Company Performance: Owners Equity and Financial Position

Company Performance: Cash Flows

Company Performance: Comprehensive Evaluation

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