Determining the bond redemption decision

Reference no: EM13953510

Bond Redemption Decision

Armstrong Aero Ace, a flight training school, issued $100,000 of 20-year bonds at face value when the market rate was 10%. The bonds have been outstanding for ten years. The company pays annual interest on January 1. The current rate for similar bonds is 4%. On January 1, the controller would like to retire the bonds at 102 and then issue $100,000 of ten-year bonds to pay 4% annual interest.

Required

Draft a memo to the controller advising him to retire the outstanding bonds and issue new debt. Ignore taxes.

Reference no: EM13953510

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