Problem # 1
Kenneth J. Nelson has just purchased a new car for $35,000. He paid
$5,000 down and signed a note for the remaining $30,000. The interest
rate on the note is 12% compounded monthly, or 1% per month.
1. Compute the amount of Mr. Nelson's monthly payment if he plans to
pay off the $30,000 note in 30 monthly payments. Remember: The
interest rate is 1% per month.
2. Repeat part (1) assuming that Mr. Nelson wishes to repay the note
in 60 monthly payments.
3. Assume that Mr. Nelson decides to repay the note in 60 monthly
payments. What is the balance remaining on the note immediately after
he makes the 30th payment? Hint: Compute the present value of the
remaining 30 payments.
Problem # 2
On July 1, 2006, Paramount, Inc. issued $500,000, 8%, 30-year bonds
with interest paid semiannually on January 1 and July 1. The bonds
were sold when the market rate of interest was 8%. On October 1, 2009,
the bonds were retired when their fair market value was $495,000.
Demonstrate, using the present value tables, that the bonds were sold
Provide the journal entry made on July 1 to record the issuance of the bonds.
Provide the journal entry made on December 31, 2006, relating to interest.
Provide the journal entries to record the retirement of the bonds.
Problem # 3
Using the following information, determine how much external funding
will be necessary during the coming period (if any).
Collections from customers
Minimum cash balance desired
Direct labor expense
Cash balance, beginning
Manufacturing overhead expense
Income tax expense
Selling and administrative expenses
Direct materials expense
Problem # 4
In 2001 Pandora, Inc., makes a rights issue at a subscription price of
$5 a share. One new share can be purchased for every four shares held.
Before the issue there were 10 million shares outstanding and the
share price was $6.
What is the total amount of new money raised?
What is the expected stock price after the rights are issued?