Question

Pool Corporation, Incorporated, sefls swimming pooi supples and equipment, it is a publicly traded corporation that trades on the NASDAO exchange. The majority of Pool's customers are small, family owned bushesses. Assume that Pool issued bonts with a face value of $760,000,000 on January 1 of this year and that the coupon rate is 6 percent. At the time of the borrowing. the annual maiket fate of interest was 2 percent. The debt matures in 9 years, and Pool makes interest payments semiannually on June 30 and December 31. EV of 51, PY of 51, EVA of $1, and PVA of SI) (Use appropriate foctor(s) from the tables provided.) Required: 1. What was the issue price on January 1 of this year? 2. What amount of interest expense should be tecoeded on June 30 and December 31 of this year? 3. What ampunt of cash interest should be bald on June 30 and December 31 of this year? 4. What is the book value of the bonds on June 30 and December 31 of this year? Cemplete this quntien by entering your answars in the tabs below. What is the book value of the bends on June 30 and Decenter 31 of this year?

Answer 1

The book value of the bonds on June 30 of this year is approximately $817,042,753.36, and the book value on December 31 of this year is approximately $808,012,783.83.

To calculate the issue price of the bonds, interest expense, cash interest paid, and the book value of the bonds, we can follow these steps:

1. Calculate the Issue Price :

- Use the present value formula for bonds:

`\[PV = (C * (1 - (1 + r)^(-n)))/(r) + (F)/((1 + r)^n)\]`

Where:

- PV is the present value or issue price of the bonds.

- C is the semiannual coupon payment. In this case, it's 6% * $760,000,000 / 2.

- r is the semiannual market interest rate, which is 2% / 2.

- n is the number of semiannual periods until maturity, which is 9 years * 2 (since semiannual) = 18 periods.

- F is the face value of the bonds, which is $760,000,000.

Calculate PV:

`\[PV = (0.06 * (760,000,000)/(2) * (1 - (1 + (0.02)/(2))^(-18)))/((0.02)/(2)) + (760,000,000)/((1 + (0.02)/(2))^(18))\]`

Solve for PV.

2. Calculate Interest Expense (June 30 and December 31) :

- Interest expense for the first semiannual period (June 30) is calculated as: PV * (semiannual interest rate).

- Interest expense for the second semiannual period (December 31) is calculated in the same way.

3. Calculate Cash Interest Paid (June 30 and December 31) :

- Cash interest paid is equal to the coupon payment, which is 6% * $760,000,000 / 2.

4. Calculate the Book Value of the Bonds (June 30 and December 31):

- The book value at the beginning of the period (June 30) is the same as the issue price.

- The book value at the end of the period (December 31) is calculated as follows:

- Beginning book value (June 30) - Interest expense (June 30) + Cash interest paid (June 30) = Ending book value (December 31).

Now, let's calculate these values step by step.

1. Calculate the Issue Price:

- Using the formula, we find that the issue price is approximately $817,042,753.36.

2. Calculate Interest Expense (June 30 and December 31):

- Interest expense for both periods is approximately $8,170,427.53.

3. Calculate Cash Interest Paid (June 30 and December 31):

- Cash interest paid for both periods is approximately $22,800,000.

4. Calculate the Book Value of the Bonds (June 30 and December 31):

- The beginning book value (June 30) is approximately $817,042,753.36.

- The ending book value (December 31) is approximately $808,012,783.83.

So, the book value of the bonds on June 30 of this year is approximately $817,042,753.36, and the book value on December 31 of this year is approximately $808,012,783.83.