Hathaway Manufacturing issues long-term debt on January 1, 2011. The debt has a face value of $300,000
Question:
Hathaway Manufacturing issues long-term debt on January 1, 2011. The debt has a face value of $300,000 and an annual stated interest rate of 10 percent. The debt matures on January 1, 2016.
(a) Assume that the debt agreement requires Hathaway Manufacturing to make annual interest payments every January 1. Set up a timeline that indicates the timing and magnitude of the future cash outflows of this long-term debt.
(b) Assume that the debt agreement requires Hathaway Manufacturing to make semiannual interest payments every July 1 and January 1. Set up a timeline that indicates the timing and magnitude of the future cash outflows for this long-term debt.
(c) Under the conditions of (a) and (b), compute the present value of these two debt agreement, assuming that the effective rate of interest is equal to the stated rate of interest.
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
Step by Step Answer:
a b All dollar amounts on the time line below are in thousands of dollars c Total Present Value Pres...View the full answer
