Financial Accounting and Reporting - Business Environmental Concepts
The ABC Company has decided to finance expansion by issuing $10 million worth of 20-year debenture bonds and will ask a number of underwriters to bid on the bond issue.
Individual Portion
Write a report of 1-2 pages in which you explain why a company would want to use bonds to expand its business. In your report, you must answer the following questions:
• What considerations will you use in deciding the face value of the bonds?
• What considerations will you use in deciding the interest rate?
• What are the different types of bonds that will be offered?
• Discuss if the bonds must sell at a discount or at a premium, and why?
• How would the NPV, IRR, payback, discounted payback, and discounted annual cash flows help in management's decision making?
o What are the advantages and disadvantages of each and can you use only one to make the decision or do you need to use them all?
o Assume the following in computing this (the dollar amounts are in millions):
Year 0: Cash flow is $(10)
Year 1: Cash flow is $ 6
Year 2: Cash flow is $7
Year 3: Cash flow is $10
Discount Factor is 30%