Answer:
A. $880
B. -$752.23
Explanation:
To find the conversion value of the issue, we start with this calculation
The initial step is to compute the Conversion ratio using the following formula
Conversion ratio = Par value of security/ Conversion price
Substituting, we find
Conversion ratio = $1,000/$25
Thus, Conversion ratio = 40
Next, we determine the Conversion value with this formula
Conversion value = Conversion ratio * Conversion price
Substituting gives
Conversion value = 40*$22 per share
Therefore, the conversion value of the issue equals $880
B. Now calculating the Straight bond value of the issue
Using a financial calculator for Present Value (PV)
PMT = 8%*1,000 = 80
N = 12 years
1/Y = 12%
FV = 1,000
Thus, PV = -$752.23
This means the Straight bond value of the issue is -$752.23
Response: $1091.61
Clarification:
Based on the inquiry, fifteen years ago, Mr. Fairhold invested $50,000 in a single-premium annuity contract, and this year, he began to receive a monthly payment of $1,300 that will last throughout his lifetime, with an expected total of $312,000. The taxable amount of each monthly payment for Mr. Fairhold is calculated as follows:
In accordance with the inquiry, Mr. Fairhold will recoup his $50,000 tax-free. The exclusion ratio is formulated by dividing the investment by the anticipated return. This yields:
= $50,000/$312,000
= 0.1603
Given that he receives a monthly payment of $1,300 and the exclusion ratio stands at 0.1603, the tax-free return on investment would then amount to:
= $1,300 × 0.1603
= $208.39
Taxable portion of the annuity payment will therefore be:
= $1300 - $208.39
= $1091.61
Answer:
$600 million
Explanation:
On January 1, 2020, the balance of common stock & APIC is derived as follows:
Common stock & APIC = Paid-In Capital + Capital raised from selling 50 million shares at $20 each - Treasury Stock
This gives:
Paid-In Capital = $500 million
Issuance of 50 million shares at $20 each amounts to:
Treasury Stock involves buying back 20 million shares priced at $45 each.
Inserting the numbers leads to:
Common stock & APIC = $500 million + $1000 million - (20 million shares × $45 each)
Therefore, Common stock & APIC = $1500 million - $900 million = $600 million
No, this arrangement violates the AICPA Code of Conduct. The firm's fee is entirely contingent upon the success of their work, whereas the Code permits compensation based on effort but not solely on outcome. Since there is no guaranteed fee unless tax credits are awarded, this opens the door to potential misconduct by the firm. To prevent such risks, the Code disallows fees that depend exclusively on the achievement of tax credits.
