Solve the following 3 questions and show work Solve the following 3 questions an

Question

Solve the following 3 questions and show work Solve the following 3 questions and show work OnJanuary 1, 2018 Carter Corporation wishes to issue S4,000,000 of its 8%, 5-year bonds. The bonds pay interest semi -annually on June 30th and December 31st, The current yield (market) rate on such bonds is 10%. Using present value factors from tables, compute the amount that Carter will realize from the issuance of the bonds. Cash Received upon Issuance Use the following information for questions 2 and 3: On January 1, 2017, Gore Co. sold to Cey Corp. S800,000 of its 10% bonds for $708,236 to yield 12%. Interest is payable semiannually on January 1 and July 1. 2. What will be the cash outlay for interest in 2018? 3. What will be interest expense for the year ended 12/31/2018

Explanation / Answer

1)semiannual interest = 4000000*.08*6/12=160000

semiannual months =5*2=10

semiannual yield= 10*6/12 = 5%

cash received upon issuance =[PVA 5%,10* Interest]+[PVF 5%,10*Face value]

      =7.72173*160000]+ [.61391*4000000]

        = 1235476.8+ 2455640

       = 3691116.8

2)semiannual interest = 800000*.10*6/12 = 40000

cash outlay for interest in 2018 = 40000 on jan 1 +40000 july1 = 80000

3)

interest expense for 2018= 42802.44+42970.58= 85773.02

period ended Interest expense interest paid discount amortised carying value at end july12017 42494.16 [708236*.12*6/12] 40000 42494.16-40000=2494.16 708236+2494.16=710730.16 dec 31 2017 42643.81     [710730.16*.12*6/12] 40000 2643.81     [42643.81-40000] 710730.16+2643.81= 713373.97 july 1 2018 42802.44 40000 2802.44 716176.41 dec 31 2018 42970.58 40000 2970.58 719146.99

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