Budgeted balance sheet

Bullen needs to borrow $500,000. He agrees to sign a 15-year, noninterest-bearing note. The bank needs to earn 8 percent compounded quarterly. Bullen prepares its budgeted financial statements on a quarterly basis.

Required:

A. How much money will Bullen receive from this loan?

B. How much is the quarterly payment?

C. What amounts would be shown on the budgeted income statement for the first two quarters?

D. What amounts would be shown on the budgeted statement of cash flows for the first two quarters and how would it be classified?

E. What amounts would be shown on the budgeted balance sheet for the first two quarters?

Each of the following $5,000,000 debt instruments is subject to a 10 percent market rate of interest. When measured on a common-size basis, which of the following is the most expensive debt to use?

A. $5,000,000 noninterest-bearing, 10-year note (annual compounding).

B. $5,000,000 bond with an 8 percent face rate that is paid annually; the bond is due in 10 years.

C. $5,000,000 note payable, with a 10-year life and a 12 percent face rate of interest that is paid annually.

Solution: