For premium & discount bonds, is CFO always equal to the coupon rate * face value. What I mean is that we don’t record interest expense in CFO and the amortization in CFF.
According the schweser: (my thoughts in parens). What do you think - am I correct in that the amort of the premium or discount must be added back or subtracted from NI in CFO? “Cash Flow: Cash flow from operations includes a deduction for interest expense (already in the NI). The amortization of bond discount or premium is a noncash charge to income, and therefore excluded from CFO (must be added back or subtracted in the D&A adjustment). Since the coupon is higher for premium bonds, CFO is understated relative to a firm that does not have premium bonds. The opposite is true for discount bonds - the CFO is overstated. Upon issuance of a bond, CFF is increased by the amount of the proceeds and upon repayment of the bond, CFF is reduced by the par value.”