when the debt was initially sold.
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Debt Retirement. Crouse Inc. is a manufacturer of electronic components for facsimile equipment. The company financed the expansion of its production facilities by issuing $100 million of ten-year bonds carrying a coupon rate of 6.5 percent with interest payable annually on December 31. The bonds had been issued on January
- At the time of the issuance, the market rate of interest on similar risk-rated instruments was six percent
Two years later, the market rate of interest on comparable debt instruments had climbed to eight percent. The CEO of Crouse realized that this might be an opportune time to repurchase the bonds, particularly because an unexpected surplus of cash made the outstanding debt no longer necessary.
Required:
- Calculate the proceeds received by the company when the debt was initially sold.
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- Debt Retirement. Crouse Inc. is a manufacturer of electronic components for facsimile equipment. The company financed the expansion of its production facilities by issuing $100 million of ten-year bonds carrying a coupon rate of 6.5 percent with interest payable annually on December 31. The bonds had been issued on January At the time of the issuance, the market rate of interest on similar risk-rated instruments was six percent Two years later, the market rate of interest on comparable debt instruments had climbed to eight percent. The CEO of Crouse realized that this might be an opportune time to repurchase the bonds, particularly because an unexpected surplus of cash made the outstanding debt no longer necessary. Required: Calculate the amount of cash needed to retire the debt after two years assuming a market yield rate of twelve percent. Calculate the resulting gain or loss. Where will the gain/loss be reported on the company’s statement of cash flow?Debt Retirement. Crouse Inc. is a manufacturer of electronic components for facsimile equipment. The company financed the expansion of its production facilities by issuing $100 million of ten-year bonds carrying a coupon rate of 6.5 percent with interest payable annually on December 31. The bonds had been issued on January At the time of the issuance, the market rate of interest on similar risk-rated instruments was six percent Two years later, the market rate of interest on comparable debt instruments had climbed to eight percent. The CEO of Crouse realized that this might be an opportune time to repurchase the bonds, particularly because an unexpected surplus of cash made the outstanding debt no longer necessary. Required: Calculate the interest expense for each of the two years that the bonds were outstanding.The National Bank raised capital through the sale of $150 million face alue of eight percent coupon rate, ten year bonds. The bonds paid interest semiannualy and were sold at at time when equivalent risk- rated bonds carried a yield rate of ten percent. Calaculate the proceeds that the bank recieved from the sale of the eight percent bonds. How will the bonds be disclosed on the balance sheet immediately following the sale? Calaculatt the interest expense on the bonds for the first year that the bonds are outstanding. Calculate the book value of the bonds at the end of the first year. Question 1: Fill in the Bond Amortization Table and the highlighted cells using the information from E9.19 in the Data Tab. Show only positive numbers in the first table. Use Excel to do the calculations and don't round. Period Cash Payments Interest Expense Amortized Discount Discount Balance Face Value Book Value 0 $131,306,684.00 150,000,000 $150,000,000.00 1…
- The Virginia Corporation recently issued 10-year bonds at a price of $1,000. These bonds pay $60 in interest each six months. Their price has remained stable since they were issued. i.e. they still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years, a par value of $1,000 and pay $40 in interest every six months. If both bonds have the same yield, how many new bonds must the company issue to raise $2,000,000 cash?On November 1, 2022, Colicchio Conglomerates sold $225,000,000 20-years bonds with a coupon rate of 5% paid semi-annually. The market rate for a security of similar risk and maturity is 6%. Colicchio Conglomerates hired Faulkner Investment Vehicles to issue the securities at a cost of 1.275% of the selling price of the security. Record journal entries for the issuance of the bond, the first two interest payments, and any required adjusting entries for Colicchio Conglomerates for the fiscal year ending December 31, 2022.ABC company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par and incurred a floatation cost of 2 percent per issue. 1. Does the New loan have anything to do with calculating the cost of debt? 2. Should the new loan be considered in the calculation of the weighted average cost of capital (WACC) of the company? if so how should it be added to the WACC formula.
- Due to a number of lawsuits related to toxic wastes, a major chemical manufacturer has recently experienced a market reevaluation. The firm has a P1,000 bond issue outstanding with 15 years to maturity and a coupon rate of 8 percent, with interest paid semiannually. The required nominal rate on this debt has now risen to 15 percent. What is the current value of this bond?A pharmaceutical company will contract a new loan in the sum of $2,000,000 that is secured by machinery and the loan has an interest rate of 6 percent. The company has also issued 4,000 new bond issues with an 8 percent coupon, paid semi-annually, and matures in 10 years. The bonds were sold at par, and incurred floatation costof 2 percent per issue. 1. Calculate the cost of debt and the market value of debt.To help finance a major expansion, a company sold a noncallable bond several years ago that now has 15 years to maturity. This bond has a 5% annual coupon, paid semiannually, it sells at a price of $985, and it has a par value of $1,000. If the company’s tax rate is 28%, what component cost of debt should be used in the WACC calculation?
- Debt Valuation: Interest-Bearing Debentures. At the beginning of the year, Marshall Square, Inc. issued $100 million (maturity value) of 20-year debentures. The debentures carry a 4.75 percent annual coupon rate (compounded semi-annually) and interest payments are made semi-annually. The market rate of interest at the time the debentures were issued was 5 percent. Required Calculate the proceeds received by Marshall Square when the bonds were sold.DrumPic Corporation issued $100 million bonds that mature in 30 years and have a 5% coupon rate that is paid annually. If the bonds were sold to yield 6.4%, determine the price of the bonds at the end of year 20.Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 11 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? c. Repeat part (b) using the straight-line method for the interest deduction.
