manufactures cycling equipment. Recently the vice president of operations of the
ID: 2462293 • Letter: M
Question
manufactures cycling equipment. Recently the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company's exercise equipment. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $5,000,000 of 11% bonds on March 1, 2014, due on March 1, 2029, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 8%. instruction ; -1 What is the selling price of the bonds? -2prepare an amortization schedule of any bound discount or premium for the first 2 years of term of the bond
Explanation / Answer
Selling price of the bonds = 5000000 * PVIF(30,4%) + 275000 * PVIFA(30,4%)
= 5000000 * 0.308 + 275000 * 17.292 = $6295300
The selling price is at a premium of $1295300.
Amortization schedule of premium for the first 2 years of term of the bond:
payment date cash interest paid $ Interest amortised $ Premium amortised carrying amount$ 1/3/14 6295300 1/9/14 275000 251812 23188 6272112 1/3/15 275000 250884 24116 6247996 1/9/15 275000 249920 25080 6222916 1/3/16 275000 248917 26083 6196833 Total 1100000 1001533 98467Related Questions
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