Present Value of Bonds Payable; DiscountPinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder Co. issued $25,000,000 of five-year, 7% bonds,with interest payable semiannually, at a market (effective) interest rate of 9%.Determine the present value of the bonds payable, using the present value tables in Exhibit 8 and Exhibit 10. Round to the nearest dollar.

Answered: Present Value of Bonds Payable;…

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter22: Corporations: Bonds

Section: Chapter Questions

Problem 3MC

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Present Value of Bonds Payable; Discount
Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder Co. issued $25,000,000 of five-year, 7% bonds,
with interest payable semiannually, at a market (effective) interest rate of 9%.
Determine the present value of the bonds payable, using the present value tables in Exhibit 8 and Exhibit 10. Round to the nearest dollar.

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Working:

$P r e s e n t v a l u e o f o f $ 1 f o r 10 s e m i a n n u a l p e r i o d s a t 4.5 % s e m i a n n u a l r a t e i s 0.643930 F a c e a m o u n t o f b o n d s = 25, 000, 000 P r e s e n t v a l u e = 0.643930 \times 25, 000, 000 = $ 16, 098, 250$

$P r e s e n t v a l u e o f a n a n n u i t y o f $ 1 f o r 10 p e r i o d s a t 4.5 % i s 7.91272 S e m i a n n u a l i n t e r e s t p a y m e n t = $ 25, 000, 000 \times 3.5 % = $ 875, 000 P r e s e n t v a l u e o f s e m i a n n u a l i n t e r e s t p a y m e n t = $ 875, 000 \times 7.91272 = $ 6, 923, 630$

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