Question

In: Accounting

Ivanhoe Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested...

Ivanhoe 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 $3,478,400 of 11% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2017. At the time of issuance, the market interest rate for similar financial instruments is 12%.

1) As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) What is the selling price of the bonds?

Solutions

Expert Solution

Present Value of Interest payment= (3478400*12%/2)*(PVAF 30years@6%)

                                                                                 =208704*13.76483=$2872775.08

Present Value of Principal=3478400*(PVF 30th year @6%)

                                                  = $3478400*0.17411=605624.22

Therefore Selling Price=$2872775.08 + $605624.22=$3478399.30=$3478399 (Rounded Off)


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