Question
Subject: Excel for Accounting Book: Using Excel and Access for Accounting 2013 Chapter: Test Chapters 5-7 Question : You just started a job as an
Subject: Excel for Accounting Book: Using Excel and Access for Accounting 2013 Chapter: Test Chapters 5-7
Question: You just started a job as an analyst in a local small business. The business is expanding quickly. The owner, your boss, doesnt know or understand much about accounting/banking. She wants to borrow some money to finance the expansion of her manufacturing plant. She is asking you to produce a report showing the differences between taking out a loan or issuing bonds. She also wants a recommendation from you in the report. Youve done some research and found the following:
-She will need $125,000 for the plant building addition. -She will need $50,000 for additional equipment for the plant (equipment is expected to last 5 years). The local bank really likes what she is doing and is willing to give a loan on the following terms: -Plant: 10 year 5.5% loan with annual payments or 15 year 6.0% loan with annual payments -Equipment: 5 year 7.0% loan with annual payments. The bank is also willing to help you issue bonds (for both the building and equipment or separately) for the expansion with two options as follows: -10 year 6% with semi-annual payments (current market rate is 6.5%) 15 year 7.5% with annual payments (current market rate is 7.0%) -SUGGEST doing a scenario summary showing results if interest rates change before the bonds are issued. For the report, how do I determine if bond or loan is the best option? I'm also confused because depending on the bond option there is one with a discoutn and a premium. I actually did this problem, and have bond and loan amortization tables done, but I'm having a hard time figuring out what option is best (That is, if I did my tables correctly!) for the plant and equipment. I can send you my file if needed.
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