Long term Debt: Interpreting Financial Statements

Cabot Cove’s annual report contained a note on long term debt. A partial list of the long term debt follows, exclusive of current maturities (dollars in thousands):

2000

1999

Notes due 2001, 9.875%

$150,000

$150,000

Notes due 2002 2022, 8.07%

105,000

105,000

Overseas Private Investment Corp.

due 2002, floating rate 6.5%

15,000

Industrial revenue bonds, due

2001 2014, 9.35% 14%

5,000

6,000

Required

a. Comment on why Cabot might have long term debt with such different interest rates and different maturities.

b. Based on current interest rates, which of these liabilities will sell above (or below) par values? Why?

c. Discuss how managers might use an aggressive debt retirement strategy to increase or decrease net income.