Kraft Foods Inc. issued four tranches of notes in 2010 to
finance its acquisition of Cadbury. The four types of notes were
individually priced. Below you will find excerpts from their
prospectuses and 8-K disclosure of material events. The Settlement
Date is the date on which Kraft Foods Inc. received the proceeds
from the note issue (some terms were modified for analytical
simplicity). Questions for the assignment follow the
excerpts.

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Question: Kraft Foods Inc. issued four tranches of notes in 2010 to finance its acquisition of Cadbury. The…
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“Kraft Foods Inc.’s notes prospectus

Filed pursuant to Rule 433

Relating to Preliminary Prospectus Supplement dated February 3,
2010 to Prospectus Dated December 4, 2007 Registration Statement
No. 333-147829

Pricing Term Sheet

$9,500,000,000

$1,000,000,000 2.625% Notes due 2013 (the “2013
Notes”)

$1,750,000,000 4.125% Notes due 2016 (the “2016
Notes”)

$3,750,000,000 5.375% Notes due 2020 (the “2020
Notes”)

$3,000,000,000 6.500% Notes due 2040 (the “2040
Notes”)

Issuer: Kraft Foods Inc. (“Kraft”) Offering Format: SEC
Registered

Size:

$1,000,000,000 of 2013 Notes

$1,750,000,000 of 2016 Notes

$3,750,000,000 of 2020 Notes

$3,000,000,000 of 2040 Notes

Maturity:

2013 Notes: May 8, 2013

2016 Notes: February 9, 2016

2020 Notes: February 10, 2020

2040 Notes: February 9, 2040

Coupon:

2013 Notes: 2.625%

2016 Notes: 4.125%

2020 Notes: 5.375%

2040 Notes: 6.500%

Price to Public:

2013 Notes: 99.731%

2016 Notes: 99.658%

2020 Notes: 99.176%

2040 Notes: 99.036%

Interest Payment Dates:

2013 Notes: Semi-annually in arrears on May 8 and November 8,
commencing on November 8, 2013

2016 Notes: Semi-annually in arrears on February 9 and August 9,
commencing on August 9, 2010

2020 Notes: Semi-annually in arrears on February 10 and August
10, commencing on August 10, 2010

2040 Notes: Semi-annually in arrears on February 9 and August 9,
commencing on August 9, 2010

Settlement Date: May 8, 2010

Interest on the 2013 Notes is payable semiannually on May 8 and
November 8, commencing November 8, 2010, to holders of record on
the preceding April 23 and October 24. Interest on the 2016 Notes
is payable semiannually on February 9 and August 9, commencing
August 9, 2010, to holders of record on the preceding January 25
and July 25. Interest on the 2020 Notes is payable semiannually on
February 10 and August 10, commencing August 10, 2010, to holders
of record on the preceding January 26 and July 26. Interest on the
2040 Notes is payable semiannually on February 9 and August 9,
commencing August 9, 2010, to holders of record on the preceding
January 25 and July 25. Interest on the Notes will be computed on
the basis of a 360-day year consisting of twelve 30-day months.

The 2013 Notes will mature on May 8, 2013. The 2016 Notes will
mature on February 9, 2016. The 2020 Notes will mature on February
10, 2020. The 2040 Notes will mature on February 9, 2040.”

1. Are the notes issued at a premium or discount? How do you
know?

2. What is the coupon interest rate on the “2013 Notes”?

3. What is the market rate of interest rate (also known as
effective interest rate) on the “2013 Notes”?

4. Show the journal entry for the “2013 Notes” on May 8,
2010.

5. Construct an amortization schedule that shows
premium/discount amortization over the life of the “2013 Notes”
(similar to the examples in class).

6. Show the journal entries for the “2013 Notes” on November 8,
2010.

7. Assume the fiscal year ends on December 31, 2010. Show the
appropriate adjusting entries related to the “2013 Notes” (round
interest for the period to the nearest month for simplicity).

8. Show the entries on May 8, 2011 (related to the “2013
Notes”), assuming the financial statements were correct on December
31, 2010 (round interest for the period to the nearest month for
simplicity).

9. Show the entries on November 8, 2011 (related to the “2013
Notes”).

10. Assume 60% of the “2013 Notes” are redeemed early on May 8,
2012 for $595,000,000 in cash. Provide all the journal entries
required on this date related to the “2013 Notes,” assuming the
financial statements were correct on December 31, 2011.

11. Does the early redemption affect the income statement? If
so, what is the effect?

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