Exercise 6-13 Swifty Inc. manufactures cycling equipment. Recently, the vice pre

Question

Exercise 6-13

Swifty Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,009,100 of 8% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2017. At the time of issuance, the market interest rate for similar financial instruments is 8%

Exercise 6-14

Blue, Inc. is a furniture manufacturing company with 50 employees. Recently, after a long negotiation with the local labor union, the company decided to initiate a pension plan as a part of its compensation plan. The plan will start on January 1, 2017. Each employee covered by the plan is entitled to a pension payment each year after retirement. As required by accounting standards, the controller of the company needs to report the pension obligation (liability). On the basis of a discussion with the supervisor of the Personnel Department and an actuary from an insurance company, the controller develops the following information related to the pension plan.

The interest rate to be used is 9%.

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On the basis of the information above, determine the present value of the pension obligation (liability). (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Average length of time to retirement 14 years Expected life duration after retirement 10 years Total pension payment expected each year after retirement    for all employees. Payment made at the end of the year. $824,200 per year

Explanation / Answer

Exercise 6-13 PV= Maturity Value/(1+i)n PV= 3009100/(1+0.04)^30 PV=                       9,27,761.70 interest for half year (i) 0.4 No. of coupon payments 30 Exercise 6-14 Average length of retirement 14 years Expected life duration after retirement 10 Years Payment made at end of year 824200 Interest rate 9% Total Collection 11538800 Present Value of obligation                           34,52,945

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