Issuing Zero Coupon Debt

CFA Level I
#1

30 Seconds!!! Companies that issue zero-coupon debt will most likely overstate: A. CFO but not interest expense B. Interest Expense but not CFO C. Both CFO and interest expense D. Neither CFO nor interest Expense

#2

A. CFO is overstated b/c there is no cash interest out the door. Interest expense will not be overstated either (to the best of my knowledge); the non-cash interest charge will hit the CFF line.

#3

A for sure

#4

A, zeros severly overstate

#5

good job guys

#6

can somebody explain the interest expense issue here? S

#7

interest expense is incurred on the income statement and accrued into the liability, but there is no cash flow there are only two cash flows with zero-coupon bonds: CFF inflow at the beginning of the period (bond at deep discount) CFF outflow at maturity