On January 1 2013 Ontec Corporation sold and issued
On January 1, 2013, Ontec Corporation sold and issued $ 100 million, five- year, 10 percent bonds. The bond interest is payable annually each December 31. Assume three separate and independent selling scenarios: case A, bonds sold at par; case B, bonds sold at 90; and case C, bonds sold at 110.
Required:
1. Complete a schedule similar to the following for each separate case, assuming straight- line amortization of discount and premium. Disregard income tax. Show all dollar amounts in millions.
2. For each separate case, calculate the following:
a. Total cash outflow.
b. Total cash inflow.
c. Net cash outflow.
d. Total interest expense over the life of the bonds.
3. a. Explain why the net cash outflows differ among the three cases.
b. For each case, explain why the net cash outflow is the same as total interest expense.
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