Subsidiary Company S has $1,000,000 of bonds outstanding at 8% annual interest. The bonds have 10 years to maturity. If the parent, Company P, is able to purchase the bonds at a price that reflects 6% annual interest, what effect will the purchase have on consolidated income in the current and future years? What would the effects be if the purchase price reflected a 9% annual interest rate? Your response need not be quantified.
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Subsidiary Company S has $1,000,000 of bonds outstanding at 8% annual interest. The bonds have 10 years to maturity. If the parent, Company P, is able to purchase the bonds at a price that reflects 6% annual interest, what effect will the purchase have on consolidated income in the current and future years? What would the effects be if the purchase price reflected a 9% annual interest rate? Your response need not be quantified.
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- The Latham Corporation is planning on issuing bonds that pay no interest but can be converted into $1,000 at maturity, 7 years from their purchase. To price these bonds competitively with other bonds of equal risk, it is determined that they should yield 6 percent, compounded annually. At what price should the Latham Corporation sell these bonds?Thomas Company is planning to issue $510,000 of 9%, 15-year bonds payable to borrow for a major expansion. The owner, Frederick Thomas, asks your advice on some related matters. Read the requirements. ..... Requirement 1. Answer the following questions. At what type of bond price will Thomas Company have total interest expense equal to the cash a. interest payments? Face value Under which type of bond price will Thomas Company's total interest expense be greater than the b. cash interest payments? Discount price If the market interest rate is 12%, what type of bond price can Thomas Company expect for the c. bonds? Discount price Requirement 2. Compute the price of the bonds if the bonds are issued at 89. The price of the $510,000 bond issued at 89 is $ 453,900 Requirement 3. How much will Thomas Company pay in interest each year? How much will Thomas Company's interest expense be for the first year? (For this scenario we are assuming that the $510,000 bonds are issued at 89. Further…Wildhorse Company is issuing long-term bonds to raise money for a planned acquisition. The face value of the bonds is $9551000. The stated interest rate is 10% payable seminannally for the 10 year term. The current market rate for similar bonds is 8%. What amount of proceeds is closet to the amount that Wildhorse will receive from this bond issue?
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