Sleet Company has proposed a bond offering of
$5,000,000 at a contract rate of interest of...
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Accounting
Sleet Company has proposed a bond offering of$5,000,000 at a contract rate of interest of 6% and interestpayments to be paid semi-annually. The question is if the marketrate is 10% then what would be the cash proceeds for this 12-yearbond assuming all bonds were sold at auction?
Another question is what would be the amount ofinterest charged to Sleet Company during the first year the bondswere outstanding?
What is the total amount of interest paid during theentire life of the bonds?
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3.9 Ratings (701 Votes)
Table values are based on:
n=
24
i=
5.0%
Cash Flow
Table Value
Amount
Present
Value
Interest
13.79864
$1,50,000
$20,69,796
Principal
0.31007
$50,00,000
$15,50,350
Price of
Bonds(Cash Proceedings)
$36,20,146
Date
Interest
Payment($5,000,000*3%)
Interest
expenses(Bond carrying amount*12%)
Discount
amorrtization
Bond
carrying amount
Col I
Col II
Col III
Col IV(Col III - Col II)
Col V
Issue
date
36,20,146
Interest
1
1,50,000
1,81,007
31,007
36,51,153
Interest
2
1,50,000
1,82,558
32,558
36,83,711
Bond
Interest expenses for Year 1 =$181,007 + $182,558 =$363,565
Total
Interest paid for entire lofe of Bonds =$150,000*24
=$3,600,000
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