On January 1, a Company Issues Bonds Dated January 1

question 196

Multiple Choice

On January 1, a company issues bonds dated January 1 with a par value of $400,000. The bonds mature in 5 years. The contract rate is 7%, and interest is paid semiannually on June 30 and December 31. The market rate is 8% and the bonds are sold for $383,793. The amount of interest expense each semi-annual period using straight-line amortization is:

• A)$14,000.00.
• B)$28,000.00.
• C)$17,620.70.
• D)$31,241.40.
• E)$15,620.70.

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Definitions:

Capital Budgeting

The process of planning and managing a firm’s investment in long-term assets.

Net Advantage

The overall benefit or gain achieved from a specific decision, action, or investment, considered after accounting for all relevant costs and drawbacks.

Operating Lease

A lease agreement allowing for the use of an asset without ownership, typically with shorter terms than a finance lease.

Residual Value

The projected valuation of an asset at the completion of its operational life.