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rows $500,000 to fund the project. 2. If Montclair borrows the funds, does its financing structure become more or less risky?
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Answer #1
Par value of bonds $800,000
Annual interest payment 6%
semi annual interest payment (800,000*6%)/2
Period Cashflow Present value Calculation
1 $24,000 $23,077 (24000/(1.04)^1
2 $24,000 $22,189 (24000/(1.04)^2
3 $24,000 $21,336 (24000/(1.04)^3
4 $24,000 $20,515 (24000/(1.04)^4
5 $24,000 $19,726 (24000/(1.04)^5
6 $24,000 $18,968 (24000/(1.04)^6
7 $24,000 $18,238 (24000/(1.04)^7
8 $24,000 $17,537 (24000/(1.04)^8
9 $24,000 $16,862 (24000/(1.04)^9
10 $24,000 $16,214 (24000/(1.04)^10
11 $24,000 $15,590 (24000/(1.04)^11
12 $24,000 $14,990 (24000/(1.04)^12
13 $24,000 $14,414 (24000/(1.04)^13
14 $24,000 $13,859 (24000/(1.04)^14
15 $24,000 $13,326 (24000/(1.04)^15
16 $24,000 $12,814 (24000/(1.04)^16
17 $24,000 $12,321 (24000/(1.04)^17
18 $24,000 $11,847 (24000/(1.04)^18
19 $24,000 $11,391 (24000/(1.04)^19
20 $824,000 $376,063 (824000/(1.04)^20
$691,277
1 Hence, Issue price of the bond is $ 691,277
2
Account titles and explanation Debit Credit
Cash $691,277
Discount on issue of bonds $108,723
    Bonds payable $800,000
(Bond issued at discount)

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