19. If the above company bought land with a long term debt: quick ratio and curr

Question

19. If the above company bought land with a long term debt: quick ratio and current ratio increase quick ratio and current ratio decrease quick ratio goes up, current ratio goes down quick ratio goes down and the current ration goes up none of the above 20. The Company sold an 8% $10,000,000 bond. Interest is paid semiannually. The bond matures in 5 years. The current market rate of interest on similar bonds is 5%, who much will the bond sell for? 21. The Company is contemplating the purchase of equipment with a current cost of $100,000. It will generate cash inflows of $13,000 for 10 years. At the end of 10 years it can be sold for $5,000. The Company's interest rate is 8%. Using present value analysis should they buy the equipment?

Explanation / Answer

19) land is a fixed asset and long term debt is a long term liabililyt whereas current ratio = current assets/current liabilities Quick ratio = (Current assets-inventory-prepaid expense)/current liabilities hence there will be no effect on the above ratios of the land bought option e ) none of the above is the answer 20) principal 10,000,000 interest 400000 use PV of $1 table for principal at 2.5% for 10 years Use PV of ordinary annuity table for interest at 2.5% for 10 years principal   10,000,000*.78120= 7812000 interest 400,000*8.75206= 3500824 Bonds issue price 11312824 21) present value analysis Factor PV Cost of Equipment -100,000 1 -100,000 cash inflow 13,000 6.71008 87231.04 Salvage value 5,000 0.46319 2315.95 Net present value -10,453

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