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On January 1, 2009, Carlin Corporation issued $2,400,000 of 5-year, 8% bonds at 95; the bonds pay interest
semiannually on July 1 and January 1. By January 1, 2011, the market rate of interest for bonds of risk similar to
those of Carlin Corporation had risen. As a result the market value of these bonds was $2,000,000 on January 1,
2011—below their carrying value. Andrea Carlin, president of the company, suggests repurchasing all of these bonds
in the open market at the $2,000,000 price. To do so the company will have to issue $2,000,000 (face value) of new
10-year, 11% bonds at par. The president asks you, as controller, "What is the feasibility of my proposed repurchase
plan?" Required: Prepare a memo (at least 3 paragraphs) to the president in response to her request for advice. The
memo should include; A discussion of the economic factors that you believe should be considered for her repurchase
proposal. Comment on the relative increase/decrease in interest expense for Carlin Corporation if a new bond issue
is made. What is the carrying value of the outstanding Carlin Corporation 5-year bonds on January 1, 2011? (Assume
straight-line amortization.) You will be graded on how well you address the questions. Addressing the questions
involves identifying relevant facts, applying the chapter concepts,, and answering each question completely. Proper
APA formatting is expected and required (cited sources, reference page, etc.). Supplement and synthesize your
analysis with outsides scholarly sources.
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