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Brief Exercise G-16 Pharoah Company issued 6%, 6-year, $225,000 par value bonds that pay interest annually...

Brief Exercise G-16

Pharoah Company issued 6%, 6-year, $225,000 par value bonds that pay interest annually on April 1. The bonds are dated April 1, 2022, and are issued on that date. The discount rate of interest for such bonds on April 1, 2022, is 8%.

Click here to view the factor table.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What cash proceeds did Pharoah receive from issuance of the bonds? (Round answer to 0 decimal places, e.g. 125.)
Cash proceeds from issuance of the bonds
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Answer #1

Cash proceeds from issuance of the bonds= $204,197

Working

Bonds issue price is calculated by ADDING the:
Discounted face value of bonds payable at market rate of interest, and
Discounted Interest payments amount (during the lifetime) at market rate of interest.

.

Annual Rate Applicable rate Face Value $ 225,000
Market Rate 8% 8.00% Term (in years) 6
Coupon Rate 6% 6.00% Total no. of interest payments 6

.

Calculation of Issue price of Bond
Bond Face Value Market Interest rate (applicable for period/term)
PV of $            225,000 at 8.00% Interest rate for 6 term payments
PV of $1 0.63017
PV of $            225,000 = $ 225,000 x 0.63017 = $ 141,788 A
Interest payable per term at 6.00% on $ 225,000
Interest payable per term $ 13,500
PVAF of 1$ for 8.00% Interest rate for 6 term payments
PVAF of 1$ 4.62288
PV of Interest payments = $ 13,500 x 4.62288 = $ 62,409 B
Bond Value (A+B) $                    204,197
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