Page 30 - CFA Lecture Day 10 Slides

Session Unit 8:
31. Non-Current (Long-Term) Liabilities (A/A/A/B/B/C/B)

tanties

B. The present value of a 4-year annuity of $600,000 plus a 4-year lump sum of $10 million, all
valued at a discount rate of 7%, equals $9,661,279.

C. The new book value = beginning book value + interest expense – coupon payment = $9,661,279 + $676,290 –
$600,000 = $9,737,569. The interest expense was calculated in question 5. Alternatively, changing N from 4 to 3
and calculating the PV will yield the same result. The change in market rates will not affect amortized costs

B. Coupon payments + discount interest = coupon payments + (face value – issue value) =
$2,400,000 + ($10,000,000 – $9,661,279) = $2,738,721.