This assignment is due at the beginning of class on Monday, $20$ November $2023,$ 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 $1,$ a firm issues $10-$years bonds with a par value of $$300,000,$ and a $10\%$

coupon rate. At the time of issue, the market rate of interest on bonds of similar risk and maturity was

$8\%.$ Interest is payable annually on December $31$ 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 $3,$ the firm decides to

repurchase the bonds in the open market. At that time, the market rates of interest are $5\%.$ 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 $$20,000$ and $4$

years to maturity as of the end of F$\text{'}14.$ Firm A$\text{'}$s bonds pay annual coupons of $10\%.$ Firm B$\text{'}$s

bonds pay annual coupons of $5\%.$ Assume:

For the year $2015$ 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 $30\%.$

Complete the FY$15$ income statement, the FY$15$ direct statement of cash flows and the EOY' $15$

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'$15).$ Note that the bonds payable

on the balance sheet at EOY'$14$ would be the beginning carrying value $($present value when

calculating YTM$).$

FIRM A

EOY'$14$

Cash $=6,325$

Accounts Receivable $=5,000$

Inventory $=15,000$

$-$ Current Assets $=26,325$

Net PPE $=50,000$

Total Assets $=76,325$

Accounts Payable $=5,000$

Bonds Payable $=21,325$

Equity $=50,000$

Total LIab. & Equity $=76,325$

EOY'$15$

Cash $=?$

Accounts Receivable $=5,000$

Inventory $=15,000$

Current Assets $=?$

Net PPE $=45,000$

Total Assets $=?$

Accounts Payable $=5,000$

Bonds Payable $=?$

Equity $=50,000$

Total LIab. & Equity $=?$

FY$15$

Sales $=100,000$

COGS $=70,000$

Gross Profit $=30,000$

Operating Expenses $=10,000$

Depreciation $=5,000$

EBIT $=15,000$

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 Long$-$Term Debt $=0$

Dividends Paid $=?$

Cash Flow from Financing Act. $=?$

Cash Flow from Investing Act. $=0$

Net Change in Cash $=?$

FIRM B

EOY'$14$

Cash $=6,325$

Accounts Receivable $=5,000$

Inventory $=15,000$

Current Assets $=26,325$

Net PPE $=50,000$

Total Assets $=76,325$

Accounts Payable $=8,312$

Bonds Payable $=18,013$

Equity $=50,000$

Total LIab. & Equity $=76,325$

EOY'$15$

Cash $=?$

Accounts Receivable $=5,000$

Inventory $=15,000$

Current Assets $=?$

Net PPE $=45,000$

Total Assets $=?$

Accounts Payable $=8,312$

Bonds Payable $=?$

Equity $=50,000$

Total LIab. & Equity $=?$

FY$15$

Sales $=100,000$

COGS $=70,000$

Gross Profit $=30,000$

Operating Expenses $=10,000$

Depreciation $=5,000$

EBIT $=15,000$

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 Long$-$Term Debt $=0$

Dividends Paid $=?$

Cash Flow from Financing Act. $=?$

Cash Flow from Investing Act. $=0$

Net Change in Cash $=?$