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 bicycles. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11 percent corporate bonds on April 1, 2019, due on April 1, 2033. Interest is payable annually on April 1 each year. At the time the bonds were issued, the market interest rate for similar financial securities is 10 percent. Determine the selling price of the bonds. The company, having issued the bonds in part (b), is committed to make annual sinking fund deposits of $90,000. The deposits are made on the last day of each year and yield a return on 10 percent. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what is the amount of the deficiency?
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 bicycles. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11 percent corporate bonds on April 1, 2019, due on April 1, 2033. Interest is payable annually on April 1 each year. At the time the bonds were issued, the market interest rate for similar financial securities is 10 percent. Determine the selling price of the bonds. The company, having issued the bonds in part (b), is committed to make annual sinking fund deposits of $90,000. The deposits are made on the last day of each year and yield a return on 10 percent. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what is the amount of the deficiency?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
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:
Question
- 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 bicycles. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,000,000 of 11 percent corporate bonds on April 1, 2019, due on April 1, 2033. Interest is payable annually on April 1 each year. At the time the bonds were issued, the market interest rate for similar financial securities is 10 percent. Determine the selling price of the bonds.
- The company, having issued the bonds in part (b), is committed to make annual sinking fund deposits of $90,000. The deposits are made on the last day of each year and yield a return on 10 percent. Will the fund at the end of 15 years be sufficient to retire the bonds? If not, what is the amount of the deficiency?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education