Exercise 6-13 Wildhorse Inc. manufactures cycling equipment. Recently, the vice
ID: 2567175 • Letter: E
Question
Exercise 6-13
Wildhorse Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,492,700 of 9% term corporate bonds on March 1, 2017, due on March 1, 2032, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2017. At the time of issuance, the market interest rate for similar financial instruments is 8%.
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As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
Find the selling price of the bonds!
Selling price of the bonds $Explanation / Answer
Interest payment=3,492,700×9%×1/2
=$157,171.50
Time=30 semi annual periods
Rate=8%/2=4%semiannual
Present value of interest payments:
PV-OA=R(PV-OA t,i)
=$157,171.50(PV-OA at t=30,i=4%)
=$157,171.50×17.29203
=$2,717,814.29
Present value of principal=FV(PVF,t,I)
=$3,492,700(PVF, t=30,i=4%)
=$3,492,700×.30832
=$1,076,869.26
Selling price of bond=$1,076,869.26+$2,717,814.29
=3,794,684