Avilon Corp, needs to raise a minimum of $50,000,000 for a major expansion. The Board of Directors is considering selling bonds to raise the required amount. The three options they are considering are as follows:
#1) $50,000,000, 15 year, 6% bonds; interest paid semi-annually; sold to yield 8%.
#2) $50,000,000, 15 year, 6% bonds, interest paid semi-annually; sold to yield 4%.
#3) $50,000,000, 15 year, 6% bonds, interest paid semi-annually; sold to yield 6%.
Required: 1) Compute the selling price of the bonds under the three different options.
2) For option #1, prepare an amortization schedule using the effective interest method. Be sure to adjust the last payment's interest, up or down, so that the bond carrying value equals $50,000,000.
3) Indicate what option would be the best, and support your answer.