Ava, Inc., îssued 8% bonds, dated January with a face amount of $128,300 on Janu

Question

Ava, Inc., îssued 8% bonds, dated January with a face amount of $128,300 on January 1, 2016 for an issue price of 88.5 The bonds mature on December 31, 2025 10 years). For bonds of similar risk and maturity the market yield is 10%. Interest is paid annually on December 31 What is the lst year's interest expense? on 2 0.2 out of 0.2 points Ginobili Company has Total assets Total Liabilities Net income Interest expense Taxes $20,907 6,856 5,875 836 1,733 What is Ginobili's Return on equity? (Answer as a % and Round to 2 decimal places). For example, if your calculation is. 1 1 1 1, answer as 1 1.1 1)

Explanation / Answer

Answer to Question 1:

Face Value = $128,300

Issue Price = 88.50% * $128,300
Issue Price = $113,545.50

Annual Market Yield = 10%

Interest Expense for Year 1 = $113,545.50 * 10%
Interest Expense for Year 1 = $11,354.55

Answer to Question 2:

Total Equity = Total Assets - Total Liabilities
Total Equity = $20,907 - $6,856
Total Equity = $14,051

Return on Equity = Net Income / Total Equity
Return on Equity = $5,875 / $14,051
Return on Equity = 41.81%

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