Question
Hathaway Manufacturing issued long - term debt on January 1, 2017. The debt has a face value of $ 300,000 and an annual stated interest
Hathaway Manufacturing issued long - term debt on January 1, 2017. The debt has a face value of $ 300,000 and an annual stated interest rate of 10 percent. The debt matures on January 1, 2022.
a. Assume that the debt agreement requires Hathaway Manufacturing to make annual interest payments every January 1. Set up a time line 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 pay ments every July 1 and January 1. Set up a time line 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 agreements, assuming that the effective interest rate is equal to the stated interest rate.
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