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The Bowman Corporation has a bond obligation of $16 million outstanding, which it is considering refunding. Though the bonds were initially issued at 13 percent, the interest rates on similar issues have declined to 11.8 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a call premium of 9 percent on the old issue. The underwriting cost on the new $16,000,000 issue is $460,000, and the underwriting cost on the old issue was $350,000. The company is in a 35 percent tax bracket, and it will use an 10 percent discount rate (rounded aftertax cost of debt) to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) PV of total outflows $ b. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) PV of total inflows $ c. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value $ d. Should the old issue be refunded with new debt? Yes N
ABC Corporation is considering an expansion project. The necessary equipment could be purchased for $20,674 and shipping and installation costs are another $1,082. The project will also require an initial $4,904 investment in net working capital. The..
Kale Inc. forecasts the free cash flows (in millions) as follows. FCF1 = -$40 an FCF2 = $80. If the weighted average cost of capital (WACC) is 12.0% and FCF is expected to grow at a rate of 6.0% after Year 2, what is the firm's total corporate value,..
Navel County Choppers Inc. is experiencing rapid growth. The company expects dividends to grow at 15 percent per year for the next 8 years before levelling off at 6 percent into perpetuity. The required return on the company’s stock is 12 percent. If..
Market value will be 60 millions. During the year company will raise and invest 20 million in new projects. The firm presents value capital structure described below. No short -term debt. Debt: 30,000,000 Common equity: 30,000,000 and Total equity: 6..
A bond has 5 years to maturity and has a YTM of 8%. Its par value is $1,000. Its semi annual coupons are $50. What is the bonds current market price?
Suppose you are creating a butterfly spread using call options with 3 different strike prices. Currently, the call price with strike price of $40 is $21.94, the call with strike price of $50 is $11.24, and the call with strike price of $60 is $6.55. ..
Determine the new target weighted average cost of capital for Felicia & Fred, given following assumptions: Weights of 70% debt and 30% common equity (no preferred equity); this essentially reverses their previously calculated capital structure. Calcu..
A Heights Inc. bonds have a coupon rate of 7%, a yield to maturity of 10%, a face value of $1,000, and mature in 10 years. Which of the following statements is MOST correct?
The D.J. Masson Corporation needs to raise $600,000 for 1 year to supply working capital to a new store. Masson buys from its suppliers on terms of 1/10, net 90, and it currently pays on the 10th day and takes discounts. However, it could forgo disco..
A stock has an expected return of 15.1 percent, a beta of 1.60, and the expected return on the market is 11.40 percent. What must the risk-free rate be?
The Quick Manufacturing Company, a large profitable corporation, is considering the replacement of a production machine tool. A new machine would cost $3700, have a 4- year useful and depreciable life, and have no salvage value. For tax purposes , su..
The market return on the U.S. Treasury bill is generally used as the measure of the:
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