Question

Analyzing Debt Terms, Ylelds, Prices, and Credit Ratings Reproduced below is the debt footnote from the 2011 10-K report of Dell Inc. January 28, January 29, 2010 Long-Term Debt (in millions) 2011 Notes S 401 $ 400 $400 million isued on June 10. 2009, at 3.375% due June 2012 599 S600 million issued on April 17, 2008, at 4.70% due April 2013 609 499 $500 million issued on September 7. 2010, at 1.406 due September 2013 500 500 $500 million issued on April 1. 2009, at 5.625% due April 2014 S700 million issued on September 7, 2010, at 2.30% due September 2015 700 499 499 $500 million isued on April 17, 2008, at 5.65% due April 2018 S600 million issued on June 10. 2009, at 5.875% due June 2019 600 600 ces 400 400 $400 million isued on April 17, 2008, at 6.50% due April 2038 300 $300 million isued on September 7, 2010, at 5,40% due September 2040 Senior Debentures 394 389 $300 million isued on April 3, 1998 at 7.10% due April 2028 Other 24 India term loan: entered into on October 15, 2009 at 8.9% due October 2011 $ 250 S- Structured financing debt Total long-term debt $ 3,417 $5.146 Short-Term Debt 496 Commercial paper 850 164 Structured financing debt 11 Other 851 663 Total short-term debt $ 4,080 $5.997 Total debt

Answer 1

A. $ 5,146

On the balance sheet, assets and liabilities increase by the bond proceeds (face value). The book value of the bond liability will not change over the term of the bond.

2012	$0
2013	$595
2014	$1,155
2015	$500
2016	$700
Thereafter	$2,100

Excessive payments in any one year can create a cash flow problem ,especially if the debt cannot be refinanced

B.The difference arises because the interest paid is based on the prevailing Interest rates that change frequently.

C.Credit rating agencies assess companies default risk by guaging the level of debt in relation to the companies operating cashflow,profitability ratios,and the ratios for long term credit worthiness.

D. 284.4

-The current market value of the notes is not reflected in Dell's balance sheet.

- Only the balance sheet and statement of cash flows would be affected as they reflect the cash payment and consequent reduction of liabilities.

-The Price of the bonds is unrelated to the general level of interest rates,only the rate of interest on Dells debt.Because that hasn't changed.other causes must be considered.