Roaring Rapids Adventures Is Short on Cash, and Facing a Serious

Essay

Roaring Rapids Adventures is short on cash, and facing a serious problem. The company does not have enough cash to pay the wages of its park employees, and paychecks are due. Several of the employees have indicated that they will quit if they do not receive their paychecks on time. The company has decided to make a public offering on October 31, 2016, of a $200,000, 5-year 10% bond with semiannual payments to cover the immediate problems as well as some long-term investments that the company hopes to make. Similar bonds demand an 8% return.
A. Is this bond being sold at a premium or a discount? Does this have an effect on the risk of the bond?
B. Assuming negligible charges by the company's discount investment banking firm, show effects of these initial offerings using the financial statement equation format.
C. Create a bond amortization table for the first 3 payments showing the effects of amortization on the liability and interest payments.
D. How and by what amount would the amortization differ if Roaring Rapids Adventures issued zero-coupon debt?