Viavélo Inc. manufactures cycling equipment. Recently, the company’s vice-president of operations has requested construction of a new plant to meet the increasing demand for the company’s bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $2 million of 11% term corporate bonds on March 1, 2020, due on March 1, 2034, with interest payable each March 1 and September 1. At the time of issuance, the market interest rate for similar financial instruments is 10%.
Instructions
a. As Viavélo’s controller, determine the selling price of the bonds. Show calculations using (a) factor Tables A.2 and A.4 in Appendix A, (b) a financial calculator, or (c) Excel function PV.
b. What is the basis of measurement for the bonds?
c. Is there any measurement uncertainty that requires disclosure in Viavelo’s financial statement notes?
