The Wall Street Journal reported that many companies take advantage of the depressed market values of their own debt, and buy their own bonds at steep discounts below the debt's face value. Beazer Homes, Harrah's Entertainment, and Tenet Healthcare provide examples of companies that purchased their own debt "on the cheap" to save millions of dollars in principal and interest payments.

INSTRUCTIONS:
a. Explain how the market values of these companies' long-term debts could decrease in an economic environment where interest rates were also decreasing.
b. What advantages would a company experience by retiring its debt for less than face value?
c. How would the financial statements be affected by such a transaction?