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How much new debt needs to be issued

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Question - You have decided to advance refund $10,000,000 of outstanding debt that is callable in five years. The interest rate on these bonds is 8 percent. You can issue new bonds at 6 percent. For every dollar of new debt issued, you will incur a 5 percent issuance cost. Interest payments on the present issue are $800,000 per year with no scheduled principal payments. How much new debt needs to be issued to realize defeasance of the present issue?

Reference no: EM131939314

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