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Problem #1 Presented below are three unrelated situations. a. Morphe Company recently signed a lease for a new office building, for a lease period of
Problem #1
Presented below are three unrelated situations.
- a. Morphe Company recently signed a lease for a new office building, for a lease period of 10 years. Under the lease agreement, a security deposit of $12,000 is made, with the deposit to be returned at the expiration of the lease, with interest compounded at 5% per year. What amount will the company receive at the time the lease expires?
- b. Samson Corporation, having recently issued a $20 million, 15-year bond issue, is committed to make annual sinking fund deposits of $600,000. The deposits are made on the last day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what will the deficiency be?
- c. Under the terms of his salary agreement, president Zack Effron has an option of receiving either an immediate bonus of $55,000, or a deferred bonus of $70,000 payable in 10 years. Ignoring tax considerations and assuming a relevant interest rate of 4%, which form of settlement should Effron accept?
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