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New Jersey Water Co (NJWC) is considering whether to refund a $50 million, 14% coupon, 30-year bond issue that was sold 5 years ago. It is authorizing $3 million of flotation costs on the 14% bonds over the 30-year life of that issue. NJWC’s investment bankers have indicated that the company could sell a new 25-year issue at an interest rate of 11.67% in today’s market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NJWC’s marginal tax rate is 40%. The new bonds would be issued at the same time the old bonds were called.a. What is the relevant refunding investment outlay?b. What are the relevant annual interest savings for NJWC if refunding takes place?c. What are the relevant annual flotation cost tax effects for NJWC if refunding takes place?d. What is the NJWC bond refunding’s NPV?
How large of a sales increase can the company achieve without having to raise funds externally? Round your answer to the nearest cent.
Be sure to explain why and how the demand and supply curve will shift, whether the Euro will appreciate or appreciate or depreciate relative to the Yen, or whether the net effect is ambiguous. Label your graphs completely.
Suppose the comments of Brian Walker, the president of Herman-Miller North America, who was quoted in chapter as having said: 'For dot.coms, it appears that market has implicitly capitalized a lot of those costs.
you are thinking of investing in a stock that is selling for 60 and that you think will go up in price over the next
it makes no coupon payments over the life of the bond. The required return on both these bonds is 10 percent compounded semiannually.
Since Congress passed Medicare in 1965, the program has been subject of countless debates on topics ranging from reimbursement rates to the potential bankruptcy of Medicare.
An organization had a history of making regular investments in IT acquisition projects. It consistently spent more on IT acquisitions than its competitors but seemed to gain no advantage from doing so.
Calculate the realized rate of return for investors who purchased the bonds when they were issued and who surrender them today in exchange for the call price.
Furthermore, if we had enough after 2 years, how much do we need to give the lender to amortize? If we gave the lender $4,000 in addition to our regular amount after 3 years, How many more payments would we need to give?
Why have two-thirds of Americans failed to prepare a will? Explain.
Your annual mortgage payment on your house is $50,000. It is a 30-year mortgage at 5.25% annually. How much did you borrow?
Stock A has a beta of 1.76 and stock B has a beta of 0.89. How much needs to be invested in stock B if you want a portfolio beta of 1.10?
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