Exercise NO: 6

Presented below are three unrelated situations.\n(a) Dwayne Wade Company recently signed a lease for a new office building, for a lease period of\n10 ye

Presented below are three unrelated situations.

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(a) Dwayne Wade Company recently signed a lease for a new office building, for a lease period of

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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 10% per year. What amount will the company receive at the time the lease expires?

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(b) Serena Williams 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?

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If not, what will the deficiency be?

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(c) Under the terms of his salary agreement, president Rex Walters has an option of receiving either an immediate bonus of $40,000, or a deferred bonus of $70,000 payable in 10 years. Ignoring tax considerations and assuming a relevant interest rate of 8%, which form of settlement should Walters accept?

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Snider Corporation, a publicly traded company, is preparing the interim financial data which it will issue to its shareholders at the end of the first

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