Reproduced below is the debt footnote from the 2013 10-K report of Dell Inc.

Reproduced below is a summary of the market values as of November 2013 of the Dell bonds maturing from 2021 to 2040 (from Morningstar, quicktake.morningstar.com).

Required

a. What is the amount of long-term debt reported on Dell's February 1, 2013, balance sheet? What are the scheduled maturities for this indebtedness? Why is information relating to a company's scheduled maturities of debt useful in an analysis of its financial condition?

b. Dell reported \(\$ 270\) million in interest expense in the notes to its 2013 income statement. In the note to its statement of cash flows, Dell indicates that the cash portion of this expense is \(\$ 279\) million. What could account for the difference between interest expense and interest paid? Explain.

c. Dell's long-term debt is rated Baal by Moody's, BBB + by S\&P, and BBB + by Fitch. What factors would be important to consider in attempting to quantify the relative riskiness of Dell compared with other borrowers? Explain.

d. Dell's \(\$ 300\) million \(5.4 \%\) notes traded at 69.5 or \(69.5 \%\) of par, as of November 2013 . What is the market value of these notes on that date? How is the difference between this market value and the \(\$ 300\) million face value reflected in Dell's financial statements? What effect would the repurchase of this entire note issue have on Dell's financial statements? What does the 69.5 price tell you about the general trend in interest rates since Dell sold this bond issue? Explain.

e. Examine the yields to maturity of the three bonds in the table above. What relation do we observe between these yields and the maturities of the bonds? Also, explain why this relation applies in general.

Transcribed Image Text:

Long-Term Debt (in millions) Senior Notes $400 million issued on June 10, 2009, at 3.375% due June 2012 ("2012 Notes"). $600 million issued on April 17, 2008, at 4.70% due April 2013 ("2013A Notes").. $500 million issued on September 7, 2010, at 1.40% due September 2013... $500 million issued on April 1, 2009, at 5.625% due April 2014 (b).... $300 million issued on March 28, 2011, with a floating rate due April 2014 ("2014B Notes")... $400 million issued on March 28, 2011, at 2.10% due April 2014... $700 million issued on September 7, 2010, at 2.30% due September 2015 (b). $400 million issued on March 28, 2011, at 3.10% due April 2016 (b).. $500 million issued on April 17, 2008, at 5.65% due April 2018 (b). $600 million issued on June 10, 2009, at 5.875% due June 2019 (b). $400 million issued on March 28, 2011, at 4.625% due April 2021. $400 million issued on April 17, 2008, at 6.50% due April 2038... $300 million issued on September 7, 2010, at 5.40% due September 2040.. Senior Debentures $300 million issued on April 3, 1998, at 7.10% due April 2028 ("Senior Debentures") (a). Other Long-term structured financing debt. Less: current portion of long-term debt. Total long-term debt..... **** February 1, February 3, 2013 2012 601 500 500 300 400 702 402 502 604 398 400 300 379 872 (1,618) 5,242* $ 400 605 499 500 300 400 701 401 501 602 398 400 300 384 920 (924) 6,387