The Amazing Widget Company Issues $508,000 of 8%,10-Year Debentures at 105

question 55

Multiple Choice

The Amazing Widget Company issues $508,000 of 8%,10-year debentures at 105 on 30 April 2017.The debentures pay interest on 30 April and 31 October.Assume that the company uses the straight-line method for amortisation.Calculate the net balance that will be reported for the debentures on the balance sheet on 31 October 2017.

• A)$508,000
• B)$532,130
• C)$534,670
• D)$533,400

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Definitions:

Present Value Index

A ratio used to evaluate the relative profitability of an investment or project by comparing the present value of cash inflows to the present value of cash outflows.

Interest

The charge for borrowing money, typically expressed as an annual percentage rate, or the income earned from lending funds.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as an income stream for retirees.

Average Rate of Return

A financial metric used to estimate the profitability of an investment, calculated as the average annual profit of the investment divided by its initial cost.