Question

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

Skysong 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 \$3,128,500 of 12% 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 8%.

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

\$

\$54,000 receivable at the end of each period for 8 periods compounded at 11%

#### Homework Answers

Answer #1

1

 Selling price of the bonds 4210466
 Workings: Semi-annual interest 187710 =3128500*12%*6/12 Semi-annual interest rate 4% =8%/2 Number of periods 30 =15*2 Amount PV factor 4% Present value Semi-annual interest 187710 17.29203 3245887 Principal 3128500 0.30832 964579 Total 4210466 PV factor 4% Semi-annual interest 17.29203 =(1-(1.04)^-30)/0.04 Principal 0.30832 =1/1.04^30

Question -2

 Amount receivable 54000 X PV factor 5.14612 =(1-(1.11)^-8)/0.11 Present value 277890
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