Ch14-lectureNotes-07

Ch14-lectureNotes-07 - Chapter14:LongTermLiabilities

Info iconThis preview shows pages 1–11. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 14: Long Term Liabilities Chapter 14: Long Term Liabilities
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
   Long-term debt  consists of probable  future sacrifices.    It has various  covenants  or  restrictions   for the protection of both lenders and  borrowers.    The  indenture agreement  incorporates  the terms of the issue and restrictions.   Long Term Debt: General Long Term Debt: General
Background image of page 2
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Bonds are the most common type of long- term debt. They are usually issued in denominations  of $1,000. bond indenture  is a promise (by the  lender to the borrower) to pay: 1. a sum of money at the designated date, and 2. periodic interest at a stipulated rate on the  face value. Issuing Bonds Issuing Bonds
Background image of page 4
Secured  and  unsecured bonds Term  or  serial bonds Callable bonds Convertible bonds Selected Types of Bonds Selected Types of Bonds
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Issuer of Bonds Bondholders lend cash 1. Bond Certificate 2. Payment Periodic Interest 3. Payment of Face Value (maturity) Bond Issues: Parties to the  Bond Issues: Parties to the  Contract Contract
Background image of page 6
The price of a bond issue is  determined by: the  present value of the interest payments and the  present value of the face value , both discounted at the  market (effective)  rate of interest  at date of issue. Interest payments by borrower are  calculated as: Face value of bond issue  x  Stated (face)  rate of interest Valuation of Bonds: Determining  Valuation of Bonds: Determining  Bond Prices Bond Prices
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Given: Face value of bond issue:     $100,000 Term of issue:     5 years Stated interest rate:     9% per year,  payable annually end of the year Market rate of interest: 11%   What is the issue price of the bonds? Determining Bond Prices:  Determining Bond Prices:  Example Example
Background image of page 8
Year 1 Year 2 Year 3 Year 4 Year 5 $9,000  $9,000  $9,000  $9,000  $9,000  Interest $100,000 face value Redemption at maturity ==> Interest = $100,000 x  9% per year stated rate Determining Bond Prices:  Determining Bond Prices:  Example: Cash Flows Example: Cash Flows
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Year 1 Year 2 Year 3 Year 4 Year 5 $9,000  $9,000  $9,000  $9,000  $9,000  Interest Discount at  market rate , 11% $9,000 x  3.69590 $  33,263 $100,000 Discount at  market rate , 11% $100,000 x  0.59345 $ 59,345 plus =$92,608 is the issue price  
Background image of page 10
Image of page 11
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/04/2010 for the course ACG 3103 taught by Professor Rue,j during the Spring '10 term at FGCU.

Page1 / 29

Ch14-lectureNotes-07 - Chapter14:LongTermLiabilities

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online