In: Accounting
Gleason Enterprises issued 12%, 7-year, $2,630,000 par value
bonds that pay interest semiannually on October 1 and April 1. The
bonds are dated April 1, 2020, and are issued on that date. The
discount rate of interest for such bonds on April 1, 2020, is
14%.
Click here to view the factor table.
(For calculation purposes, use 5 decimal places as
displayed in the factor table provided.)
What cash proceeds did Gleason receive from issuance of the bonds?
(Round answer to 0 decimal places, e.g.
125.)
Cash proceeds from issuance of the bonds |
Bonds issue price is calculated by ADDING the: |
Discounted face value of bonds payable at 'applicable' market rate of interest [Face value x PV Factor], and |
Discounted Interest payments amount (during the lifetime) at 'applicable' market rate of interest [Interest payment x PV Annuity factor] |
Face Value |
$ 2,630,000.00 |
Term (in years) |
7 |
Total no. of interest payments |
14 |
Annual Rate |
Applicable rate, because of Semi Annual payments |
|
Market Rate |
14.0% |
7.0% |
Coupon Rate |
12.0% |
6.0% |
Amount |
PV factor |
Present Values |
|
PV of Face Value of |
$ 2,630,000.00 |
0.38782 |
$ 1,019,966.60 |
PV of Interest payments of |
$ 157,800.00 |
8.74547 |
$ 1,380,035.17 |
Issue Price of Bonds |
$ 2,400,001.77 |