Question

# Wildhorse Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested...

Wildhorse Inc. 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 bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing \$3,478,400 of 11% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 10%.

As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

 Selling price of the bonds \$

 Selling price of the bonds 3745766
 Workings: Semi-annual interest 191312 =3478400*11%*6/12 Semi-annual interest rate 5% =10%/2 Number of periods 30 =15*2 Amount PV factor 5% Present value Semi-annual interest 191312 15.37245 2940934 Principal 3478400 0.23138 804832 Total 3745766 PV factor 5% Semi-annual interest 15.37245 =(1-(1.05)^-30)/0.05 Principal 0.23138 =1/1.05^30

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