Finance Question about OID, need help answering
Question:
- What happens on a balance sheet (both sides) when a company issues debt at OID, an original issue discount? Assume company issues 100M at 30% OID.
Cash gets higher by 70?
Liabilites gets higher by 100? (par value of bond?)
and...deferred interest payment gets up by 30? I'm not sure what happens here...
- If COmpany "A" wants to acquire another company "B" for 100M and does it by issuing 100M with 30% OID, is that enough (assuming company A has no excess cash?) Reason I am confused is that technically the company A only gets 70M in cash. What really happens to the mechanics of the acquisition? Or would this only work if the company already had at least 30M of additional cash on hand prior to issuing the OID? (Assuming all cash acquisition and no stock)
bump
the oid is amortized overtime. as such, it doesn't hit the income statemtn all at once but throughout the life of th loan
30% OID is ridiculous - OID (usually 1-3%) is booked as financing fees (an intangible asset) which are amortized over the average life of the loan (standard is 4 years). The liability is booked at par value.
Voluptatum sint assumenda fuga rerum enim aliquam labore. Qui esse harum maiores ullam nihil qui in. Dicta unde id molestias dolore. A ut sapiente blanditiis tempora.
Aut placeat modi blanditiis nam qui et rerum odit. Eum consequatur impedit repellat rerum provident omnis. Minima tenetur aut quaerat laborum velit nulla.
Sint mollitia rerum tempora quae voluptatum deleniti. Velit dolorem iure veniam quia ea dicta quis et. Quis suscipit ut laborum ab et inventore et sit.
Id blanditiis consequuntur quo est. Non non maxime molestias rerum sed.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...