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Problem 11.b: Cost of Bond Sold at Principal

1. The Steven Brandimarte Health Center, Inc. is considering raising cash on January 1 by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31. The Steven Brandimarte Health Center, Inc. expects to receive $110,000 when the bond is issued.

Determine the dollar amount of the interest payment the Steven Brandimarte Health Center, Inc. must makeeach December 31.

A) / $110,000
B) / $77,000
C) / $15,400
D) / $1,283
E) / $187,000

2. The Steven Brandimarte Health Center, Inc. is considering raising cash on January 1 by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31. The Steven Brandimarte Health Center, Inc. expects to receive $110,000 when the bond is issued.

Determine the dollar amount of the total interest payments the Steven Brandimarte Health Center, Inc. must make over the life of the bond.

A) / $110,000
B) / $77,000
C) / $15,400
D) / $1,283
E) / $187,000

3. The Steven Brandimarte Health Center, Inc. is considering raising cash on January 1 by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31. The Steven Brandimarte Health Center, Inc. expects to receive $110,000 when the bond is issued.

Determine the dollar amount of the principal payment the Steven Brandimarte Health Center, Inc. must make at the end of the bond’s life.

A) / $110,000
B) / $77,000
C) / $15,400
D) / $1,283
E) / $187,000

4. The Steven Brandimarte Health Center, Inc. is considering raising cash on January 1 by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31. The Steven Brandimarte Health Center, Inc. expects to receive $110,000 when the bond is issued.

Determine the dollar amount of the Steven Brandimarte Health Center, Inc. total five-year cost of borrowing by issuing the bond.

A) / $110,000
B) / $77,000
C) / $15,400
D) / $1,283
E) / $187,000

5. The Steven Brandimarte Health Center, Inc. is considering raising cash on January 1 by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31. The Steven Brandimarte Health Center, Inc. expects to receive $110,000 when the bond is issued.

Determine the dollar amount of the Steven Brandimarte Health Center, Inc. interest expense to be recognized each year.

A) / $110,000
B) / $77,000
C) / $15,400
D) / $1,283
E) / $187,000

6. On January 1, Year 1, the Steven Brandimarte Health Center, Inc. raised $110,000 of cash by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31.

During the second year of the bond’s life, the Steven Brandimarte Health Center, Inc. reported the following additional information: cost of goods sold, $728,000; operating expenses, $484,000; sales, $1,534,000. The company’s income tax rate was 35%.

Calculate the dollar amount of the gross profit reported by the Steven Brandimarte Health Center, Inc. for its second year.

A) / $110,000
B) / $790,600
C) / $15,400
D) / $1,534,000
E) / $806,000

7. On January 1, Year 1, the Steven Brandimarte Health Center, Inc. raised $110,000 of cash by issuing a 14%, 5-year bond, $110,000 principal, with interest to be paid each December 31.

During the second year of the bond’s life, the Steven Brandimarte Health Center, Inc. reported the following additional information: cost of goods sold, $728,000; operating expenses, $484,000; sales, $1,534,000. The company’s income tax rate was 35%.

Calculate the dollar amount of the net income reported by the Steven Brandimarte Health Center, Inc. for its second year.

A) / $110,000
B) / $790,600
C) / $1,534,000
D) / $199,290
E) / $806,000