Question

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

$

Answer 1

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