Question

Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder 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 Exhibit 5 and Exhibit 7. Round to the nearest dollar.

Answer 1

Answer:

$23,021,880

Explanation:

The computation of the present value of the bond payable is shown below:

= Present value of interest × PVIFA factor for 4.5% at 10 years + Present value of principal × discount rate for 4.5% for 10 years

= $25,000,000 × 3.5% × 7.91272 + $25,000,000 × 0.64393

= $6,923,630 + $16,098,250

= $23,021,880

Refer to the discount table and the PVIFA factor table

We simply added the interest amount and the principal amount by considering the discount rate and the PVIFA factor