Everhart Company issues $20,000,000, 6%, 5-year bonds dated January 1, 2014 on J
ID: 2490862 • Letter: E
Question
Everhart Company issues $20,000,000, 6%, 5-year bonds dated January 1, 2014 on January 1, 2014. The bonds pay interest semiannually on June 30 and December 31. The bonds are issued to yield 5%. What are the proceeds from the bond issue? 2.5% 3.0% 5.0% 6.0% Present value of a single sum for 5 periods .88385 .86261 .78353 .74726 Present value of a single sum for 10 periods .78120 .74409 .61391 .55839 Present value of an annuity for 5 periods 4.64583 4.57971 4.32948 4.21236 Present value of an annuity for 10 periods 8.75206 8.53020 7.72173 7.36009
a. $20,000,000
b. $20,865,976
c. $20,875,236
d. $20,869,232
The answer of C is already given but I need to know the steps to get to that answer
Explanation / Answer
Answer
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 2.5%
Present value
A
B
C
D
20000000*0.03
A+B
C*D
0.5
600000
600000
0.97561
585365.85
1
600000
600000
0.95181
571088.64
1.5
600000
600000
0.92860
557159.65
2
600000
600000
0.90595
543570.39
2.5
600000
600000
0.88385
530312.57
3
600000
600000
0.86230
517378.12
3.5
600000
600000
0.84127
504759.14
4
600000
600000
0.82075
492447.94
4.5
600000
600000
0.80073
480437.02
5
600000
20000000
20600000
0.78120
16092687.08
8.75206
Present value
20875206.39
Answer : The proceeds from the bond issue is $ 20,875,206.39
Figures in $
Year
Interest
Redemption value
Cash flow
Disc Rate : 2.5%
Present value
A
B
C
D
20000000*0.03
A+B
C*D
0.5
600000
600000
0.97561
585365.85
1
600000
600000
0.95181
571088.64
1.5
600000
600000
0.92860
557159.65
2
600000
600000
0.90595
543570.39
2.5
600000
600000
0.88385
530312.57
3
600000
600000
0.86230
517378.12
3.5
600000
600000
0.84127
504759.14
4
600000
600000
0.82075
492447.94
4.5
600000
600000
0.80073
480437.02
5
600000
20000000
20600000
0.78120
16092687.08
8.75206
Present value
20875206.39
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