3. Filbert owns a service station and could purchase a new machine for $30,000. After carefully studying projected costs and revenues, Filbert estimates that the machine will produce a net cash flow of $5,200 annually and will last for eight years. He determines that an interest rate of 14% is adequate for his business. Calculate the present value of the machine. When making these calculations, you need to use a present value factor that is carried to three decimal places to get the correct answers. Then determine if the purchase of this machine for $30,000 appears to be a smart decision. You must show your work and the present value of the machine must contain a dollar sign and be shown as dollars and cents. A full statement must be made stating if the machine should be purchased and a why you have come to your conclusion.

4. Solve the following problems or provide the requested information.

Reynolds Corporation issues $500,000 of five-year, 8 percent bonds at 102. Interest is paid semiannually. Assume that the market rate for similar investments is 7 percent and that the bonds are issued on an interest date. You must show your work and your answers must have dollar signs.

a. How much cash was received upon issuance of the bonds?

b. How much interest is paid each interest period to the bondholders (remember interest is paid semiannually)? Be sure to include a dollar sign in your final answer.

c. How much bond interest expense, including amortization of discount or premium, is to be recorded on the first interest date (after the issue date)? This would be the interest expense to the bondholders plus amortization of a discount (or less amortization of a premium). Be sure to include a dollar sign in your final answer.

d. What is the carrying value of the bonds after the first interest date (after the issue date)? The carrying value is the amount of the bonds that are contractually due less the amount of the unamortized discount (or plus the amount of unamortized premium) after the interest payment date. Be sure to include a dollar sign in your final answer.