1. Orlando advertised for bids for the purchase of $3 million principal amount of Waste Water Revenue...
Question:
1. Orlando advertised for bids for the purchase of $3 million principal amount of Waste
Water Revenue Bonds. Bonds will be delivered on January 1st, 2021, and the interest will
be paid on December 31st of the following years. The bonds mature as follows:
Maturity
Date
Amount
($)
12/31/2026 100,000
12/31/2027 100,000
12/31/2028 100,000
12/31/2029 100,000
12/31/2030 200,000
12/31/2031 200,000
12/31/2032 250,000
12/31/2033 250,000
12/31/2034 250,000
12/31/2025 700,000
12/31/2036 750,000
The City received three competing bids for the Waste Water Revenue Bonds. The three
offers are as follows:
From Rogue Securities:
• The City receives $3.5 million dollars
• The Interest Rates for the serial bonds with maturities:
o 2026 through 2031, 4.2 percent
o 2032 through 2036, 6.4 percent
From Johnson-Miller:
• The City Receives $3 million dollars
• The Interest Rates for the serial bonds with maturities:
o 2026 through 2028, 4.2 percent
o 2029 through 2033, 5.0 percent
o 2034 through 2036, 7.0 percent
From Shostak Corp:
• The City receives $2.95 million dollars
• The Interest rates for the serial bonds with maturities:
o 2026 to 2033, 4.4 percent
o 2034 to 2036, 6.25 percent
For each bid, compute the net interest cost (NIC) and the true interest cost (TIC). Which
bid is more advantageous for the city?
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson