Question

In: Accounting

Robinson Corp. issued 10%, 8-year, $2,500,000 PV bonds that pay interest annually. The bonds are date...

Robinson Corp. issued 10%, 8-year, $2,500,000 PV bonds that pay interest annually. The bonds are date 1/1/2017 and are issued on that date. The discount rate of interest for such bonds on 1/1/2017 is 8%. What cash proceeds did Robinson Corp receive from issuance of the bonds?

(PV of 1 is 0.54027)                                                         (FV of 1 is 1.85093)

(PV annuity due of 1 is 6.20637)                                    (PV ordinary annuity of 1 is 5.74664)

a.

$2,638,370

b.

$2,251,618

c.

$2,500,000

d.

$2,787,332

Solutions

Expert Solution

Correct Option D i.e. $2,787,332
Issue price                                             2,787,332
Calculate issue price of Bond
Semiannual Face value + Interest PVF @8% PRESENT Value
    1-8 250000 5.74664          1,436,657
8 2500000 0.54027          1,350,675
Issue price of Bond          2,787,332

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