Metlock 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 $3,432,300 of 8% 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 6%.
As the controller of the company, determine the selling price of the bonds.
Selling price of the bonds is?
Semiannual interest payment = 3,432,300 x 4%
= $137,292
Present value of principal to be received at maturity = Par value of bonds x PVF (i%, n)
= 3,432,300 x PVF (3%, 30)
= 3,432,300 x 0.41199
= $1,414,073.277
Present value of interest to be received periodically over the term of the bonds = Interest x PVAF (3%, 30)
= 137,292 x 19.60044
= $2,690,983.608
Amount to be received at the time of bond issued = Present value of principal to be received at maturity + Present value of interest to be received periodically over the term of the bonds
= 1,414,073.277 + 2,690,983.608
= $4,105,057 (Rounded to nearest whole dollar)
Selling price of the bonds = $4,105,057
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Metlock Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested...
Metlock 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 $3,432,300 of 8% 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...
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