Homework answers / question archive / Ellis is planning to issue $470,000 of 12%, ten-year bonds payable to borrow for a major expansion

Ellis is planning to issue $470,000 of 12%, ten-year bonds payable to borrow for a major expansion

Accounting

Share With

Ellis is planning to issue $470,000 of 12%, ten-year bonds payable to borrow for a major expansion. The owner, Simon Ellis, asks your advice on some related matters. Read the requirements. Requirement 1. Answer the following questions. a. At what type of bond price will Ellis have total interest expense equal to the cash interest payments? Face value Premium price b. Under which type of bond price will Ellis's total interest expense be greater than the cash interest payments? c. If the market interest rate is 15%, what type of bond price can Ellis expect for the bonds? Requirement 2. Compute the price of the bonds if the bonds are issued at 91. The price of the $470,000 bond issued at 91 is $0. Requirement 3. How much will Ellis pay in interest each year? How much will Ellis's interest expense be for the first year? (Assume the straight-line method is used.) Ellis will pay sin interest each year. (Round your answers to the nearest whole dollar.) Assuming that the straight-line method is used, Ellis's interest expense will be [ for the first year.