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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 Exhibit 8 and Exhibit 10. Round to the nearest dollar.
Expert Answer
No. of Periods = 5 x 2 = 10 semi annual period
Coupon interest for six months = (7% / 2) x $25,000,000
…………………………………………..= $875,000
Present Value of the bonds payable = [Interest x PVAF(4.5%, 10)] + [Bond Value x PVIF(4.5%, 10)]
………………………………………………….= ($875,000 x 7.91272) + ($25,000,000 x 0.643930)
………………………………………………….= $6,923,630 + $16,098,250
………………………………………………….= $23,021,880
