N.J.S.A. 40A:2-32 now allows true interest cost as the basis for bond sale awards, and true interest cost calculates the present value of the bid and requires a computer program to compare proposals.

N.J.S.A. 40A:2-32 now allows true interest cost as the basis for bond sale awards, and true interest cost calculates the present value of the bid and requires a computer program to compare proposals.

• A. True
• B. False
• C. It allows only face value comparison
• D. It uses a standard bid comparison that does not require software

Answer: (A)

True Interest Cost measures the issuer’s real financing cost by finding the yield that makes the present value of all debt-service payments equal to the bid price. Under N.J.S.A. 40A:2-32, this method is authorized for awarding bond sales. Because TIC accounts for the time value of money, including coupons, premiums/discounts, and any call features, it provides an apples-to-apples comparison across bids. Computing TIC is an iterative process to solve for the yield, so it typically requires computer software or a financial calculator to compare proposals accurately. The idea that bids could be compared by face value or without software misses the essential point: TIC reflects the true cost of financing and needs calculation tools to determine.

True Interest Cost measures the issuer’s real financing cost by finding the yield that makes the present value of all debt-service payments equal to the bid price. Under N.J.S.A. 40A:2-32, this method is authorized for awarding bond sales. Because TIC accounts for the time value of money, including coupons, premiums/discounts, and any call features, it provides an apples-to-apples comparison across bids. Computing TIC is an iterative process to solve for the yield, so it typically requires computer software or a financial calculator to compare proposals accurately. The idea that bids could be compared by face value or without software misses the essential point: TIC reflects the true cost of financing and needs calculation tools to determine.