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Mullet Technologies is considering whether or not to refund a $75 million,12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation cost on the 12% bonds over the issue's 30-year life. Mullet's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 10% in today's market. Neither they nor Mullet's management anticipate that the interest rates will fall below 10% any time soon, but there is a chance that rates will increase.
A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal plus-state tax rate is 40%. The new bonds wold be issued 1 month before the old bonds are called, with the proceeds being invested in short term government secruities returning 6% annually during the interim period. Perfom a complete bond refunding analysis. what is the bond refunding's NPV?
Interest rates on 1-year, 2-year, and 3-year Treasury bills are 5% , 6% , and 7%, respectively. Suppose that the pure expectations theory holds and that the market is in equilibrium. Determine which of the following statements is most correct?
Explain the Modigliani-Miller dividend irrelevance proposition. Discuss the different ways in which a corporation can distribute cash to its shareholders.
If you were an investment banker, how would you determine the offering price of an IPO?
The firm's weighted marginal cost of capital schedule is 12 percent for up to $6 million of investment; 16 percent for between $6 million and $18 million of investment; and above $18 million the weighted cost of capital is 18 percent.
Randy's tireland makes a product that sells for $62 per unit and has $51 per unit in variable costs. Annual fixed costs are $24,000. If Rambles sells 10 units less than breakeven, how much loss would the company recognize on its income statement?
1. Suppose you take out a margin loan for $60,000. The rate you pay is an 8.6 percent effective rate. If you repay the loan in six months, how much interest will you pay?
Why would it be challenging to properly compare the performance of an equity fund to a fixed-income market?
Five investment options have the following returns and standard deviations of returns. Use the coefficient of variation and rank the five options from lowest risk to highest risk.
A firm paid a $3.00 dividend last year and dividends are expected to grow at 15% for the next 5 years and 5% thereafter. If the required return is 13%, what is the value of a share of stock?
Allison Radios manufactures a finish line of radio and communication equipment for law enforcement agencies. The average selling price of its finished product is $180 each unit.
If the current stock price is $42, and the flotation cost per share is $4, evaluate what is the cost of the common stock?
The company has estimated expected cash inflows for three scenarios: pessimistic, most likely, and optimistic. These expected cash inflows are listed in the following table. Calculate the range for the NPV given each scenario.
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