Hammer Co. provided consulting services to Duder Inc. on December 31, 2013, but
ID: 2460444 • Letter: H
Question
Hammer Co. provided consulting services to Duder Inc. on December 31, 2013, but has decided to allow Duder Inc. to pay the balance due over time. Hammer is considering several different note options below. The market rate of interest for a company of Duder's risk level is 12%. For each option, determine the appropriate amount of service revenue that Hammer would record on December 31, 2013 and the amount of interest revenue Hammer would record for the full year ended December 31, 2015. Use the Present Value tables provided in class, and do not round the factors. Round all answers to the nearest whole dollar (including interest and cash payments for each year in your calculation). If Hammer Company opts for Option # 1 above, what is the total amount of interest revenue it will earn over the life of the note (use the shortcut discussed in class)?Explanation / Answer
Option 1 33503.68661 1.06 35513.91 1 2014 35513.90781 1.06 37644.74 2 2014 37644.74228 1.06 39903.43 1 2015 39903.42682 1.06 42297.63 2 2015 42297.63243 1.06 44835.49 1 2016 44835.49037 1.06 47525.62 2 2016 47525.61979 1.06 50377.16 1 2017 50377.15698 1.06 53399.79 2 2017 53399.7864 1.06 56603.77 1 2018 56603.77358 1.06 60000 2 2018 60000 PVAF @ 6% 0.558395 33503.69 13600 47103.69 Service Revenue Interest 60000*8% 4800 42297.63-37644.74 4652.89 9452.89 2015 Interest Revenue Option 2 64822.84 1.12 72601.58 2014 72601.58 1.12 81313.77 2015 81313.77 1.12 91071.42 2016 91071.42 1.12 101999.99 2017 8712.19 2015 Interest Revenue 102000 0.635518 64822.84 Service Revenue
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