In April 2009, Company X sold $400 million principal amount of 12.25% senior notes due 2017. During
Question:
In April 2009, Company X sold $400 million principal amount of 12.25% senior notes due 2017. During fiscal 2009, they retired approximately $448 million principal amount of senior notes and other debt. The annual interest cost of the debt retired was approximately $29 million, while the annual interest cost of the notes sold in April 2009 was approximately $49 million. Thus, during the year, Company X increased the annual interest cost of their outstanding debt securities by approximately $20 million.
Based on the previous paragraph, please answer the following questions:
What is the difference between "annual interest cost of notes" and "annual interest cost of outstanding debt"?
Explain how an increase in annual interest cost of outstanding debt securities could affect the results of Company X's operations in subsequent years and why it would make it more difficult for Company X to achieve positive net income.
Understanding Financial Accounting
ISBN: 9781119406921
2nd Canadian Edition
Authors: Christopher D. Burnley