Calculate the present value of total outflows

Assignment Help Financial Management

Reference no: EM131949647

The Bowman Corporation has a bond obligation of $23 million outstanding, which it is considering refunding. Though the bonds were initially issued at 12 percent, the interest rates on similar issues have declined to 10.7 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 8 percent on the old issue. The underwriting cost on the new $23,000,000 issue is $530,000, and the underwriting cost on the old issue was $420,000. The company is in a 35 percent tax bracket, and it will use an 12 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.)

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

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.)

d. Should the old issue be refunded with new debt? Yes No

Reference no: EM131949647

Questions Cloud

Under and over valued stock : Under/Over Valued Stock A manager believes his firm will earn a 16.1 percent return next year. Compute the return the firm should earn given its level of risk.

What was the capital gain of the tips in dollars : At the beginning of this year, the CPI was 198.30 and was at 204.00 at the end of the year. What was the capital gain of the TIPS in dollars?

Calculating costs of issuing debt home improvement : Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $3.70 million to finance plant expansion.

Think might influence the pair investment decision : Are there any other issues that you think might influence the pair’s investment decision?

Calculate the present value of total outflows : Calculate the present value of total outflows. Calculate the present value of total inflows.

What are its disadvantages relative to revenue sharing : Profit sharing is not widely practiced in the franchise business. What are its disadvantages relative to revenue sharing?

Calculate expected return and risk : Calculate Al Jazeera’s expected return and risk.

Expect to pay on loan commitment : Calculate the total interest and fees Casey’s One Stop can expect to pay on this loan commitment.

Calculate the total interest and fees : Calculate the total interest and fees you will pay on this loan commitment.

User Account

All Pages