Gargoyle Unlimited Gargoyle Unlimited Is Planning to Issue a Zero Coupon Bond

question 34

Multiple Choice

Gargoyle Unlimited
Gargoyle Unlimited is planning to issue a zero coupon bond to fund a project that will yield its first positive cash flow in three years.That cash flow will be sufficient to pay off the entire debt issue.The bond's par value will be R1,000, it will mature in 3 years, and it will sell in the market for R727.25.The firm's marginal tax rate is 40 percent.
-Refer to Gargoyle Unlimited.What is the rand value of the interest tax savings to the firm in the third year of the issue?

• A) R32.58
• B) R40.29
• C) R100.72
• D) R60.43
• E) R109.10

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Definitions:

Goodwill

An intangible asset that arises when a company is purchased for more than the fair value of its net identifiable assets, representing aspects like reputation, brand, and customer relationships.

Journal Entry

A record in accounting that represents a transaction, showing the accounts and amounts debited and credited, used to transfer values and maintain the ledger.

Consolidated Balance Sheet

A financial statement showing the combined assets, liabilities, and shareholders' equity of a parent company and its subsidiaries.

Fair Market Value

The price that an asset would sell for on the open market between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts.