Thomson Engineering Is Issuing New 20-Year Bonds That Have Warrants

question 25

Multiple Choice

Thomson Engineering is issuing new 20-year bonds that have warrants attached.If not for the attached warrants,the bonds would carry an 11% annual interest rate.However,with the warrants attached the bonds will pay an 8% annual coupon.There are 30 warrants attached to each bond,which have a par value of $1,000.What is the value of the straight-debt portion of the bonds?

• A)$652.55
• B)$686.89
• C)$723.05
• D)$761.10
• E)$799.16

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Definitions:

Actual Variable Manuf. Overhead

The actual amount incurred in variable overhead costs during manufacturing, contrasting with the budgeted or standard costs.

Direct Materials

Materials in their basic form that are specifically identifiable with the manufacturing of certain products or services.

Total Variance

The overall difference between the budgeted or standard cost figures and the actual figures.

Variable Overhead

A redefinition of variable manufacturing overhead; variable overhead encompasses all variable expenses involved in the operation of a business that are not directly tied to a specific product unit.