Dell’s $300 million 5.4% notes traded at 69.5 or 69.5% of par, as of November 2013. What is the market value of these notes on that date? 

(d) Dell’s $300 million 5.4% notes traded at 69.5 or 69.5% of par, as of November 2013. What is the market value of these notes on that date? (Round your answer to one decimal place.)

$Answer 208.5 million

 

How is the difference between this market value and the $300 million face value reflected in Dell’s financial statements?

The balance sheet is unaffected, but the income statement reflects increases (decreases) in interest rates as increases (decreases) in interest expense.

The current market value of the notes is reflected in the balance sheet as an increase (decrease) in liabilities if rates have declined (increased).

Only the statement of cash flows is affected as cash is needed to retire the liabilities when they mature.

The current market value of the notes is not reflected in Dell’s balance sheet.

Mark 0.00 out of 1.00

The correct answer is: The current market value of the notes is not reflected in Dell’s balance sheet.

 

What effect would the repurchase of this entire note issue have on Dell’s financial statements?

There would be no effect on the financial statements if Dell were to repurchase these notes because the repurchase would be made at book value.

Dell is prohibited from repurchasing the notes before maturity and, thus, no financial statements would be affected.

Only the balance sheet and statement of cash flows would be affected as they reflect the cash payment and consequent reduction of liabilities.

If Dell were to repurchase these notes, the difference would be reported as a gain in the current income statement.

Mark 1.00 out of 1.00

The correct answer is: If Dell were to repurchase these notes, the difference would be reported as a gain in the current income statement.

What does the 69.5 price tell you about the general trend in interest rates since Dell sold this bond issue?

The price of the bonds is unrelated to the general level of interest rates, only the rate of interest on Dell’s debt. Because that hasn’t changed, other causes must be considered.

Because these notes have declined in value subsequent to their issuance, market interest rates must have decreased.

The market price of the debt relates only to investor’s expectations about the general condition of the airline industry and is unaffected by the level of interest rates.

Because these notes have declined in value subsequent to their issuance, market interest rates must have increased.

Mark 1.00 out of 1.00

The correct answer is: Because these notes have declined in value subsequent to their issuance, market interest rates must have increased.

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