ACG CH12;13 – Flashcards
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(a) The market interest rate is 6%. Boise issues bonds payable with a stated rate of 5.75%
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_ Discount
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(b) Dallas issued 8% bonds payable when the market rate was 7.25%
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_ Premium
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(c) Cleveand's Cables issued 7% bonds when the market interest rate was 7%
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_ Face Value
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(d) Atlanta's Travel issued bonds payable that pay stated interest rate of 7.5%. At issuance, the market interest rate was 9.25%.
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_ Discount
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If the market interest rate is 5% when TCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
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The 6% bond is issued when the market interest rate is 5% will be priced at a premium. The are attractive in this market, so investors will pay more than face value to acquire them.
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If the market interest rate is 7% when TCU issues its bonds, will the bonds be priced at face value, at a premium, or at a discount? Explain.
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The 6% bonds issued when the market interest rate is 7% will be priced at a discount. They are unattractive in this market, so investors will pay less than face value to acquire them.
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(a) Ownership and management are separated.
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_ Disadvantage.
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(b) Entity has continuous life.
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_ Advantage.
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(c) Transfer of ownership is easy.
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_ Advantage.
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(d) Stockholders' liability is limited.
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_ Advantage.
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(e) Exposure to double taxation is evident.
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_ Disadvantage.
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(f) Entity can raise more money than a partnership or sole proprietorship.
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_ Advantage.
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(g) Government regulation is expensive.
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_ Disadvantage.
