Using the irs amortization calculate the interest, Financial Accounting

Interest on Zeroes:

Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 8 percent. Assume semiannual compounding.


a. What will these bonds sell for at issuance? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16))
Price of the bonds $________

b. Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year?(Do not include the dollar signs ($).Round your answers to 2 decimal places. (e.g., 32.16))

First year interest deduction $________
Last year interest deduction $_______

c. Repeat part (b) using the straight-line method for the interest deduction. (Do not include the dollar sign ($).Round your answer to 2 decimal places. (e.g., 32.16))

Annual interest deduction $_______

d. Based on your answers in (b) and (c), which interest deduction method would Tesla Corporation prefer?
(i) Straight - Line method ; (ii) Amortization method

Posted Date: 3/29/2013 4:15:25 AM | Location : United States

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