Ex 9-Present Value as it applies to Bonds Payable a) Einstein Corporation issues $500,000 of 8% five-year Bonds which pay interest semiannually on January 1, 202x. 1) How much will the Bond payback to the investor at the very end of the 5 years period? 2) How many times does the Bond pay this amount? 3) Since the Bond will pay interest semiannually, how many 6 month periods will there be in the in the 5 year bond life? (P) 4) If the current Market Interest Rate is 8%, what is the interest rate for half a year? 5) Looking at the Table shown in Exhibit 8 in this Chapter of the textbook Present Value of a Single Sum and using the (p) and (i) from above, what is the Present Value Factor to be used to find the present value of $500,000 to be received 5 years from today (the present) compounding semiannually.. 6) What is it worth to us today (present) to receive a single payment of $500,000 5 year from today if the current Market Interest rate is 8% and our investment will compound semiannually. b) Einstein Corporation issues $500,000 of 8% five-year Bonds which pay interest semiannually on January 1, 202x. 1) How much will the Bond pay every 6 months? 2) How many times does the Bond pay this amount? 3) Since the Bond will pay interest semiannually, how many 6 month periods will there be in the in the 5 year bond life? (p) 4) If the current Market Interest Rate is 8%, what is the interest rate for half a year? 5) Looking at the Table shown in Exhibit 10 in this Chapter of the textbook Present Value of an Annuity and using the (p) and (i) from above, what is the Present Value Factor to be used to find the present value of the payments to be received semiannually over the 5 years. 6) What is it worth to us today (present) to receive these semiannual payements over 5 years if the current Market Interest rate is 8%., c) Einstein Corporation issues $500,000 of 8% five-year Bonds which pay interest semiannually on January 1, 202x at a time when the Market Interest Rate is 8% also. 1) Using the calculations in a) and b) above, what is it worth to us today (present) to receive the two different payments, interest and principal, that this bond will pay us over the next 5 years?, 2) So, how much would an investor pay today to purchase this 8% $500,000 Bond with interest paid semiannually at a time when the Market Interest Rate is 8% ? d) Using the same methodology as above, how much woud an investor pay for the 8% $500,000 Bond paying interest semiannually if the current Market Interest Rate was 10% Ex 10 - Times Interest Earned - Data Analysis a) The following information is from the Income Statements of the Einstein Corporation: Income before Interest and Taxes Interest Expense Income before Taxes Tax Expense Net Income Current year Prior Year $ 700,000 $ 650,000 $ 200,000 $ 150,000 $ 500,000 $ 500,000 $ 100,000 $ 100,000 $ 400,000 $ 400,000 1) Calculate the number of times interest is earned for the current year? 2) Calculate the number of times interest is earned for the prior year? b) What conclusions can you draw