Guys Two comps- one issues par bonds another zero. The zero coupon comp overestates CFO but what happens to the interest expense as compared to the one with par? It is overstated /understated and how? Thanks S
Zero coupon bonds have NO Interest expense because they don’t pay interest, so ALL the CF is in Financing (for the issuer). Par bond pays interest, therefore par bond will have interest expense, which is a CFO. Now the Zero Coupon initial inflow CFI will be lower than the par bond because you are issuing it at a discount. my 2 cents (please correct if wrong -_-;
I was thinking there is no cash interest expense but surely there would be amortising expense emerging from amortising the discount that would go on the Income statement. S
Depreciation & Amortization & Depletion are NON-Cash Flow expenses when you calculate CFO using the indirect method you add them back into NI. using the Direct Method you ignore it ( I believe, need to double check on that one). that being said they don’t affect CFO. Rou