GIVEN: The Board of Directors of Global Food Corp., a leading manufacturer of food products for domestic and foreign markets, approved the issuance of bonds for their expansion programs. The board opted to issue bonds rather than issue additional shares of stock. They issued bonds with face value of P6M on January 1, 2021. The nominal rate of interest is 6% and is payable annually every December 31 based on the remaining balance of the principal. The bonds mature every December 31 at the rate of P2M for three years. The effective rate of interest is 8%.

The present value factors of 1 at 8% are: One period .9259 Two periods .8573 Three periods .7938

REQUIRED:Answer the following questions: (nos. 1-4, 2 points each; no. 5, 5 points; perfect score is 13)

1) Were the bonds issued at a discount or premium?

2) Was the issuance a gain or loss for Global Food Corp.?

3) Explain your answer in no. 2.

4) Give two possible reasons why the Board preferred issuance of bonds over issuance of shares of stock to finance the companys expansion programs.

5) Compute for the issue price of the bonds.