Appendix 1 EX 14-21 Present value of bonds payable; discount

Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder Co. issued $25,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable, using the present value tables in Exhibits 4 and 5. Round to the nearest dollar.


Answer:

Present value of $1 for 10 semiannual
periods at 4.5% semiannual rate…………………………… 0.64393
Face amount of bonds………………………………………… × $25,000,000
Present value of an annuity of $1
for 10 periods at 4.5%……………………………………… 7.91272
$16,098,250
Semiannual interest payment………………………………… × $ 875,000* 6,923,630
Total present value (proceeds)……………………………… $23,021,880
* $25,000,000 × 3.5%