Should refinancing take place and why

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Reference no: EM132720003

Problem 1: The ABC Company currently has $10 million of 10 percent coupon bonds that pay interest quarterly. These bonds are due in 10 years and can be called at a premium of 10 percent. At present, the company can float a new issue of similar bonds with a coupon rate of 6 percent. The company will have to incur issuing and underwriting expenses of $400,000. ABC has a 40% tax rate. Should refinancing take place? Show your calculations.

Reference no: EM132720003

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