Question

In 2016, Georgia Power issued bonds worth $10.5 million to improve the central Georgia power supply and to finance three other power suply projects. The bonds were purchased by the Georgia Public Service Commission under the federal stimulus program wherein Macon Water Utilities did not have to pay any dividend on the bonds. If the bond dividend rate would have been 5% per year payablokuarterly. With a bond maturityrdata 20 ya after issuance, what is the present worth of the dividend saving to Macon Water Utilities rate payers? Assume the market interest rate is 12% per year. AI=vi a 10,5ou, wo (005) 4

help please!

Answer 1

Quarterly dividend = $10.5 million x 5% x (1/4) = $0.13125 million = $131,250

Number of quarters = 20 x 4 = 80

Quarterly interest rate = 12%/4 = 3%

Total dividend savings = $131,250 x P/A(3%, 80) = $131,250 x 30.2008** = $3,963,855

**From P/A factor table