   Chapter 14, Problem 14.21EX

Chapter
Section
Textbook Problem

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 Exhibits 8 and 10. Round to the nearest dollar. To determine Time value of money: Any amount invested today earns an additional income, called interest income, after a certain period. This is called as time value of money. Present Value: The value of today’s amount expected to be paid or received in the future at a compound interest rate is called as present value. To calculate: The present value of the bonds payable. Explanation Determine the present value of the bonds payable. Step 1: Calculate the semiannual interest on bonds. Interest=Face value×Face interest rate×Interest time period=$25,000,000×7%×612=$875,000 Step 2: Calculate the present value of interest.  Particulars Amount Interest payment (a)$875,000 PV factor at semiannual market interest rate of 4.5% for 10 periods (b) 7.91272 Present value (a)×(b) $6,923,630 Table (1) Note: The present value factor for 10 periods at 4.5% interest would be 7.91272 (Refer Exhibit 10 in the chapter for present value factor). Step 3: Calculate the present value of lump sum payment of$25,000,000 (principal amount) at 4.5% for 10 periods

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Find more solutions based on key concepts 