BC Inc. plans to issue $500,000 face value bonds with a stated interest rate of 12% and market interest rate of 10%. They will mature in 10 years. Interest will be paid semiannually. At the date of issuance, compute the present value (bond issue price) of the future cash flows. Following are appropriate factors from tables: Table % / n Present Value of $1 Present Value of ordinary annuity of $1 10%/10 .38554 6.14457 12%/10 .32197 5.65022 5%/20 .37689 12.46221 6%/20 .31180 11.4699
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
ABC Inc. plans to issue $500,000 face value bonds with a stated interest rate of 12% and market interest rate of 10%. They will mature in 10 years. Interest will be paid semiannually. At the date of issuance, compute the
|
Table % / n |
Present Value of $1 |
Present Value of ordinary |
|
10%/10 |
.38554 |
6.14457 |
|
12%/10 |
.32197 |
5.65022 |
|
5%/20 |
.37689 |
12.46221 |
|
6%/20 |
.31180 |
11.46992 |
Required Computation:
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