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The Bowman Corporation has a bond obligation of $26 million outstanding, which it is considering refunding. Though the bonds were initially issued at 11 percent, the interest rates on similar issues have declined to 9.9 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 7 percent on the old issue. The underwriting cost on the new $26,000,000 issue is $560,000, and the underwriting cost on the old issue was $450,000. 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 No
Beta Industries has net income of $1,900,000, and it has 1,410,000 shares of common stock outstanding. The company's stock currently trades at $61 a share.
In February 2015, Radio Shack filed for bankruptcy protection under Chapter 11 of the Bankruptcy Act. Why did the company file under Chapter 11 instead of Chapter 7? Are all Radio Shack stores included in the bankruptcy? How does the company plan to ..
Apple is considering a large capital investment in India. The project cash flows have been prepared in rippers, however, Apple plans to fund the entire investment out of its us dollar holdings. Describe the qualitative and quantities capital budgetin..
If the overnight Fed funds rate is quoted as 3.20 percent, what is the bond equivalent rate? Calculate the bond equivalent rate on Fed funds if the quoted rate is 4.70 percent.
The beta of M Simon Inc., stock is 1.4, whereas the risk-free rate of return is 0.06. If the expected return on the market is 0.16, then what is the expected return on M Simon Inc?
You are considering the purchase of a new car. You presently own a red 2013 Chevrolet Camaro 2door LS Coupe with 60,000miles. It has 3.6 liter V6 engine with manual 6 speed transmission. Based on the replacement value analysis, what is the trade-in v..
Four months ago, you purchased 1,200 shares of LBM stock for $9.30 a share. Last month you received a dividend payment of $.065 a share. Today, you sold the shares for $8.62 a share. What is your total dollar return on this investment?
The real risk-free rate is 4%. Inflation is expected to be 2% this year and 4% the next two year. Assume that the maturity risk premium is zero. What is the yield on 2-year Treasury securities? What is the yield on 3-year Treasury securities?
How much would you be willing to pay today for an investment that will return $ 6,800 to you eight years from today if your required rate of return is 12 percent?
You likely have read about the Sarbanes-Oxley Act. Why do you suppose Congress passed this law? In your opinion, is the law providing any benefit for the average investor? Do you think if we have enough such laws, it will eventually be impossible ..
The price of ABC stock is currently $42 per share, but in six months you expect it to rise to $50. ABC does not pay a dividend. You buy a six-month call on ABC, with a strike price of $45. The option cost $200. What holding period return do you expec..
It is now January 1, 2012, and you are considering the purchase of an outstanding bond that was issued on January 1, 2010. It has a 7.5% annual coupon and had a 30-year original maturity. What is the yield to maturity. If you bought this bond, which ..
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