Use, when needed, a tax rate of 40% and assume that any tax due or tax credit does not have an immediate impact on cash (example: a tax expense of $20 generates a $20 credit to the tax payable account in the B/S).

A company raises debt for $500, at a 4% annual interest rate with a 10% annual repayment of its principal to purchase $500 of securities earning 8% per year.

a. Describe immediate impacts on the 3 financial statements (balance sheet, income statement and cash flow statement) of those operations b. Describe impacts on the 3 financial statements after one year c. Same question as in b. assuming that at the end of the first year, the company sells the securities for $600 and uses the proceeds to repay the remaining principal of the debt