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This assignment is due at the beginning of class on Monday, 2 0 November 2 0 2 3 , please bring a hard copy to
This assignment is due at the beginning of class on Monday, November please bring a hard
copy to class. Please use the templates provided. Assume the firms in all the problems use the effective
interest rate method of amortization.
Assume that on January a firm issues years bonds with a par value of $ and a
coupon rate. At the time of issue, the market rate of interest on bonds of similar risk and maturity was
Interest is payable annually on December each year.
a Prepare an amortization table for the bonds show just the first three years.
b Suppose immediately after making the interest payment at the end of year the firm decides to
repurchase the bonds in the open market. At that time, the market rates of interest are What
will the firm have to pay market value to repurchase the bonds? Will the firm report a gain, a
loss, or neither on the repurchase of the bonds? How much is the gain or loss on the repurchase
transaction that the firm would report in its financial statements?
There are two firms, A and B Each firm has bonds outstanding with a par value of $ and
years to maturity as of the end of F Firm As bonds pay annual coupons of Firm Bs
bonds pay annual coupons of Assume:
For the year all sales, inventory purchases from suppliers, operating expenses and taxes are
made in cash.
All the net income is paid out as dividends for each firm.
The tax rate is
Complete the FY income statement, the FY direct statement of cash flows and the EOY'
balance sheet below for each firm. Note that you'll have to compute the YTM on the bonds for each
company in order to find the interest expense. Similar to what we did in class, prepare the first year of
the amortization table, and use it to find what goes in interest expense income statement and the
ending carrying value of the bonds balance sheet value as at EOY' Note that the bonds payable
on the balance sheet at EOY' would be the beginning carrying value present value when
calculating YTM
FIRM A
EOY'
Cash
Accounts Receivable
Inventory
Current Assets
Net PPE
Total Assets
Accounts Payable
Bonds Payable
Equity
Total LIab. & Equity
EOY'
Cash
Accounts Receivable
Inventory
Current Assets
Net PPE
Total Assets
Accounts Payable
Bonds Payable
Equity
Total LIab. & Equity
FY
Sales
COGS
Gross Profit
Operating Expenses
Depreciation
EBIT
Interest Expense
EBT
Taxes
Net Income
Dividends
Cash collected from sales
Cash paid for inventory purchase
Cash paid for operating expenses
Cash paid for interest
Cash Flow from Operating Act.
Issuance of LongTerm Debt
Dividends Paid
Cash Flow from Financing Act.
Cash Flow from Investing Act.
Net Change in Cash
FIRM B
EOY'
Cash
Accounts Receivable
Inventory
Current Assets
Net PPE
Total Assets
Accounts Payable
Bonds Payable
Equity
Total LIab. & Equity
EOY'
Cash
Accounts Receivable
Inventory
Current Assets
Net PPE
Total Assets
Accounts Payable
Bonds Payable
Equity
Total LIab. & Equity
FY
Sales
COGS
Gross Profit
Operating Expenses
Depreciation
EBIT
Interest Expense
EBT
Taxes
Net Income
Dividends
Cash collected from sales
Cash paid for inventory purchase
Cash paid for operating expenses
Cash paid for interest
Cash Flow from Operating Act.
Issuance of LongTerm Debt
Dividends Paid
Cash Flow from Financing Act.
Cash Flow from Investing Act.
Net Change in Cash
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