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Long-term Liabilities: BONDS see “Confederation Bridge…”p. 734 of text. Text pages734 757 (no amortization) DO: P.766+ Questions; BE16-1,2,3; E16-1,2; P16-4A. No ASSET as Collateral. What are bonds? p.736.

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Long term liabilities bonds see confederation bridge p 734 of text
Long-term Liabilities: BONDSsee “Confederation Bridge…”p. 734 of text

Text pages734757 (no amortization)

DO: P.766+ Questions;

BE16-1,2,3; E16-1,2; P16-4A

Chapt. 17 LT Debt


What are bonds p 736

No ASSET

as Collateral

What are bonds? p.736

  • Bonds are a form of ____________ notes issued by corporations, governments, and governmental agencies.

  • Bonds, like common shares, can be _____ in small denominations (usually a thousand dollars), and as a result they attract investors.

  • Often __________ against assets; if unsecured  _____________

  • _____________on assets is case of bankruptcy


Financing the growth of a company

EQUITY

selling (issuing) more shares of a company

Loss

Lower potential

DEBT

Borrow large sums of money required to ________ (pay for) big projects

Long-term capital to ______ the future revenues generated from the acquisition

Financing the Growth of a Company

Chapt. 17 LT Debt


Bonds pros cons p 737
BONDS: Pros & Cons p.737

  • Maintain

  • Interest is (p. 737 ill.16-2)

  • Lower ______ to creditors than equity

  • ________________= “servicing the debt”

  • ________= principal paid back at maturity

Chapt. 17 LT Debt


Types of bonds p 738

2000 2001 2002 2003

2000 2001 2002 2003

TYPES OF BONDSp.738

  • Bonds that mature at a single specified future date are called___________.

  • In contrast, bonds that mature in installments are called___________.

Chapt. 17 LT Debt


Types of bonds p 7381
TYPES OF BONDSp.738

  • _______________are issued in the name of the owner and have interest payments made by cheque to bondholders of record.

  • ___________________are not registered; thus bondholders must send in coupons to receive interest payments.

Chapt. 17 LT Debt


Types of bonds p 7382
TYPES OF BONDSp.738

  • ______________permit bondholders to convert the bonds into common shares at their option.

  • __________________ are subject to call and retirement at a stated dollar amount prior to maturity at the option of the issuer.

  • ___________________are subject to redemption prior to maturity at the option of the holder.

Chapt. 17 LT Debt


Bond not james bond p 739
Bond (NOT James) Bond p. 739+

”;

Chapt. 17 LT Debt


What is it worth
“what is it worth”?

  • Market Value  discount / premium

  • Debt “Rating”

  • The market value of a bond is equal to the present value of all the future cash payments promised by the bond.

Chapt. 17 LT Debt


Interest rates and bond prices ill 16 7 p 742
INTEREST RATES AND BOND PRICES, Ill. 16-7, p. 742

Market Interest Bonds Sell

Rates at

4%

Bond Contractual Interest Rate

5%

Issued when

5%

6%

Chapt. 17 LT Debt


Example: Nortel has listed in their AR 200 million 6.88% note (i.e. debt or bonds) due Sept 1, 2023. Issued Sept 1998 at par, semi annual interest

Issue date: Cash Bonds payable

Sept 1, ‘03 Bond Interest Expense

Cash

Dec 31 ‘03 Bond interest expense

Accrued interest expense payable

March 1 ‘03 Bond interest expense

Bond interest payable

Cash

Sept 1 ’23 Bond payable

Cash

Chapt. 17 LT Debt


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