case study - Rite Aid Corporation

1. Speculate as to why Rite Aid has many different types of debt with a range of interest rates.
2. Consider the 7.5% senior secured notes due March 2017. o What is the face value of these notes? How do vou know?

• Prepare the journal entry that Rite Aid must have made when these notes were issued.
• Prepare the annual interest expense journal entry.
• Prepare the journal entry that Rite Aid will make when these notes mature in 2017.

2. Suppose that Rite Aid engages in an open-market debt transaction during ear fiscal 2010 to repurchase the 9.5% senior notes due June 2017. Assume that Rite Aid paid $797,769 to repurchase the notes, which resulted in a gain of $3,750.

• Prepare the journal entry to record the repurchase of these notes.
• Why did Rite Aid not have to pay the face value to repurchase these notes on the open market?
• Is the market rate of interest at the time of the repurchase higher or lower than the 9.5% coupon rate on the notes?
• 3. Consider the 8.5% convertible notes due May 2015. Why do firms issue convertible notes?Why do investors buy such notes? How would Rite Aid's balance sheet be affected if these notes were converted?
• 4. Using the Standard and Poor's scale, describe the credit rating that you would provide for Ride Aid as of the end of fiscal 2009. Discuss the factors that influence your opinion