The option A is wrong as at the end of year 2 xyz still has higher book value
Option 2 is wrong as ABC has lesser interest expense compared to xyz for CFO
Option 3 is wrong as both of them have 10 mil as the Par value.
What’s the right answer please
Hi… Please post the question
Oops. Sorry. Just attached the question
Hello,
This is really a tricky question to understand.
First of all no where in the question have they mentioned that par value is equal.. In fact they have not given the par value itself.
But ABC has received 10m by issuing bonds at discount which means the par value is definitely more than 10m. The par value is 12.45m to be precise
Similarly XYZ has received 10m by issuing the bonds at 11% when rate was 10.50% which implies that it was issued at a premium. The par value comes out to 9.18m.
So we can conclude that Option C is correct.
Secondly, the book value of bonds on ABC’s financials is more than XYZ’s in Year 2. You can verify the same by using the yield at the time of issuance or else by looking at the book values you can make out the book value of bonds on ABC’s financials will definitely be more. So Option A is also correct here.
Hence the answer will be Option B(least likely).
Hope you find this helpful.