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Charles River Associates is considering whether to call either of the two perpetual bond issues the company currently has outstanding. If the bond is called, it will be refunded, that is, a new bond issue will be made with a lower coupon rate. The proceeds from the new bond issue will be used to repurchase one of the existing bond issues. The information about the two currently outstanding bond issues is: Bond A Bond B Coupon rate 7 % ,8 % Value outstanding $ 144,000,000 , $ 151,000,000 Call premium 7.7 % , 8.7 % Transaction cost of refunding $ 13,400,000 ,$ 22,500,000 Current YTM 6.25 % , 7.0 % The corporate tax rate is 40 percent. What is the NPV of the refunding for each bond? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Which, if either, bond should the company refinance? Bond A , Bond B , Refund both bonds , Neither bond?
What annual rate of interest must you earn on your investment to cover the cost of your child's college education?
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First, find the price of the following Bond X. The interest rate on the bond is 8%, paid semi-annually and the market yield is 9%. The maturity is 10 years. Second, assume Bond Y has the same price as calculated above. Based upon this bond price, and..
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The current value of the collateral Treasury bond is $98 and the Repo rate is 1.75% with haircut equal to 20%. What would you do, if you believe that the value of the bond may rise to $98.20? What if the price is expected to fall to $97.90?
Finding operating and free cash flows Consider the following balance sheets and selected data from the income statement of Keith Corporation. Calculate the firm’s operating cash flow (OCF) for the year ended December 31, 2015, using Equation 4.3. Cal..
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Why do you believe some industries such as airlines rely heavily on debt, while others such as computers do not?
A Company is considering purchasing one of the following two pieces of equipment. Equipment A has a purchase price of $3 million and will cost $80,000, pre-tax, to operate on an annual basis. This equipment will have to be replaced every 7 years and ..
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