Compute the present value of the refunding

Assignment Help Business Management
Reference no: EM131034908

Problem:

The US Zither Corporation has $50 million of 14 percent debentures outstanding, which are due in 25 years. USZ could refund these bonds in the current market with new 25-year bonds, sold to the public at par ($1,000 per bond) with a 12 percent coupon rate. The spread to the underwriter is 1 percent, leaving $990 per bond in proceeds to the company. The old bonds have an unamortized discount of $1 million, unamortized legal fees and other expenses of $100,000, and a call price of $1,140 per bond. The tax rate is 40 percent. There is a one-month overlap during which both issues are outstanding, and issuing expenses are $200,000.

Required:

Question: Compute the present value of the refunding, using the after-tax rate on the new bonds as the discount rate. Is the refunding worthwhile?

Reference no: EM131034908

Questions Cloud

Wehane and radin argue what exactly : "Employment at Will and Due Process," Wehane and Radin argue what exactly? What's their main conclusion, what are the crucial parts of their argument in support of that conclusion? Make sure you cite the article at least 4 times in footnotes. Word..
The detriment of your marketplace performance : Henry Mintzberg, one of the most prominent thought-leaders in Management today, proposes that the best strategies are often "emergent" in nature, meaning that they were not originally planned but born out of accident or some other fortuate deviation...
Describe the business cycle and its primary phases : Describe the business cycle and its primary phases.
There may be more than one critical path in project network : There may be more than one critical path in a project network. The critical path is the sequence of activities between a? project's start and finish that takes the shortest time to complete. If one of the activities on the critical path is? delayed, ..
Compute the present value of the refunding : Compute the present value of the refunding, using the after-tax rate on the new bonds as the discount rate. Is the refunding worthwhile?
What does the marginal physical product : Refer to the table. What does the marginal physical product equal when the amount of labor goes from 11 to 12 units?
Which financial management practices are most effective : Discuss which financial management practices are most effective in creating and monitoring an operating budget/Relating to Health Care
What factors drive benefits of influenza pandemic stockpile : What factors drive the benefits of influenza pandemic stockpile? the costs? How should Roche think about setting inventory, production, and capacity targets? How can Roche keep their supply chain network alive? Should it?
Firm wacc and total corporate value : The firm pays out all earnings as dividends, hence its stock is a zero-growth stock. Its current cost of equity, rs, is 14%. If it increases leverage, rs will be 16%. If it decreases leverage, rs will be 13%. What is the firm's WACC and total corp..

Reviews

Write a Review

 

Business Management Questions & Answers

  Discuss the children''s internet protection act and evolution

Directions:  answer in complete sentences, and be sure to use correct English spelling and grammar.  Sources must be cited in APA format.  Your response should be four (4) pages in length; refer to the "Assignment Format" page for specific format req..

  Environment- school email between team members

Prepare an appropriate response that includes Christian behavior and resolution to the issue for each hypothetical scenario below. Ensure that you analyze the possible outcomes of poor versus good netiquette.

  Elucidate how well you believe they have employed

elucidate how well you believe they have employed these three concepts in the strategy for the product or service. For example, if you believe they have focused adequately.

  Explain maximize financial value for shareholders

Is it imaginable for companies both to maximize financial value for shareholders as well as to act responsibly in the communities in which they operate to treat their employees, customers

  What can organizations do to reduce communication barriers1

what can organizations do to reduce communication barriers?1. what can organizations do to reduce communication

  Palermo and colorado carpet was primarily for the sale

Discuss fully whether the contract between the Palermo's and Colorado Carpet was primarily for the sale of goods or the sale of serv¬ices.

  Staff an organization

Would it be desirable to hire people only according to the person/organization match, ignoring the person/job match?

  Employer to fire an employee without a good reason

Should the law allow an employer to fire an employee without a good reason? Conduct research to provide examples to support your position and use your own personal employment experiences when possible.

  Explain how would you have handled it

Explain how would you have handled it and Does that change now that you have seen the Court's decision

  Manage the workforce in multicultural and virtual teams

Could you assist me with the question on how to prepare a successful climate to manage cultural diversity and manage the workforce in multicultural and virtual teams?

  Effective recruitment andnorganizations gain competitive

Effective recruitment and selection help organizations gain competitive advantages

  Counter-argument to training leaders

A third possibility is that, even if certain theories could actually guide individuals in leadership situations and even if individuals could alter their style. What is your reaction to these arguments?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd