Prairie Dunes Co. issues bonds dated January 1, 2011, with a par value of $800,000. The bonds? annual contract rate is 13%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 12%, and the bonds are sold for $819,700.
1. What is the amount of the premium on these bonds at issuance?
2. How much total bond interest expense will be recognized over the life of these bonds?
3. Prepare an amortization table like the one in Exhibit 14.11 for these bonds; use the straight-line method to amortize the premium.
The director of capital budgeting for Big Sky Health Systems, Inc., has estimated the following cash flows in thousands of dollars for a proposed new service:
Year Expected Net Cash Flow
0………………………………. ($100)
1……………………………………..70
2……………………………………..50
3 …………………………………….20
The project?s cost of capital is 10%.
a) What is the project’s payback period?
b) What is the project NPV?
c) What is the project IRR? Its MIRR?
