Cash outflows

Romine Delivery Corporation is planning to issue $10,000,000 in 10-year, 10 percent bonds. The bonds are dated May 1, 2011, and interest is payable annually on May 1. If the bonds are sold on May 1, 2011, to yield the 8 percent market rate of interest, how much cash will Romine Delivery raise by issuing the bonds?

How much interest expense will Romine Delivery incur during the first year of the bonds’ life?

How much cash will the corporation pay out during the first year of the bonds’ life?

Describe the cash outflows of the bonds for the life of the bond issue.

Kerby Company will issue a $400,000, five-year, 7 percent periodic and lump-sum payment note when the market interest rate is 8 percent. The face rate of interest is paid semiannually.

Determine the amount of cash the company will receive from the note.

Describe the cash outflows Kerby will pay on the note over its life.

What is the interest expense shown on the budgeted income statement for the first year?

Solution:

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