Calculate the present value of total inflows-total outflows

Assignment Help Financial Management

Reference no: EM131914445

The Robinson Corporation has $43 million of bonds outstanding that were issued at a coupon rate of 12.550 percent seven years ago. Interest rates have fallen to 11.750 percent. Mr. Brooks, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was 4.30 percent of the total bond value. The underwriting cost on the new issue will be 2.60 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a call premium of 6 percent starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent)

a. Compute the discount rate. (Do not round intermediate calculations. Input your answer as a percent rounded up to the nearest whole percent.)

b. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)

d. 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.)

Reference no: EM131914445

Questions Cloud

Reflection on the indian movie -sholey : Reflection on the indian movie Sholey,using cinematic terminology to analyse the significance of a few scenes that you found fundamental.

What is the value of account on april : You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1?

Prepare all the entries that would be made relative to sales : Prepare all the entries that would be made relative to sales of the golf balls included in the promotion and to the golf hat premium plan in 2017.

Should the federal government regulate local business : In your judgment, does the Commerce Clause afford the federal government the authority to regulate a local business like the Heart of Atlanta motel? Explain.

Calculate the present value of total inflows-total outflows : Compute the discount rate. Calculate the present value of total outflows. Calculate the present value of total inflows.

Main method to test your class with at least three hot dog : Need a constructor that allows a user of the class to initialize both values. Also need a method named JustSold that increments the number of hot dogs the stand

What choice faced the states affected by the decision : What choice faced the states affected by this decision? What practical effect has this decision likely had on the wine industry?

What would be cost of equity from new stock : If the company issued new stock, it would incur a 19% flotation cost. What would be the cost of equity from new stock?

Develop understanding of the significance of the customr : Develop your understanding of the significance of the customer experience relative to business strategy and success.

User Account

All Pages