Reference no: EM131317553
Web Tools Company is considering using the proceeds from a new $50 million bond issue to call and retire its outstanding $50 million bond issue. The details of both bond issues are outlined in what follows. The firm is in the 40 percent tax bracket. Old bonds.
The firm's old issue has a coupon interest rate of 10 percent, was issued four years ago, and had a twenty-year maturity. The bonds sold at a $10 discount from their $1,000 par value, floatation costs were $420,000, and their call price is $1,100. New bonds.
The new bonds are expected to sell at par ($1,000), have a sixteen-year maturity, and have floatation costs of $520,000. The firm will have a two-month period of overlapping interest while it retires the old bonds.
a. What is the initial investment required to call the old bonds and issue the new bonds?
b. What are the annual cash flow savings, if any, from the proposed bond- refunding decision if (1) the new bonds have an 8 percent coupon interest rate and (2) the new bonds have a 9 percent coupon interest rate?
c. Calculate the net present value (NPV) of refunding under the two circumstances given in part (b) when (1) the firm has an after-tax cost of debt of 4.8 percent [0.08 (1 - 0.40)] and (2) the firm has an after-tax cost of debt of 5.4 percent [0.09 (1 - 0.40)]. d. Discuss the circumstances [described in part (c)] when refunding would be favorable and when it would not.
|
National trucking has paid annual dividend
: National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:
|
|
What is the firm levered value
: The firm can borrow money at 6.75 percent. Currently, the firm is considering converting to a debt-equity ratio of 0.45. What is the firm's levered value
|
|
What would be the production possibility frontier for brazil
: What would be the production possibility frontiers for Brazil and the United States? Without trade, the United States produces AND CONSUMES 32,500 units of clothing and 125,000 cans of soda.
|
|
Find the peak value of the electric field intensity
: For an antenna radiating a time-average power of 150 kW, find the peak value of the electric field intensity at a distance of 100 km from the antenna. Assume the antenna to be radiating equally in all directions.
|
|
What are the annual cash flow savings
: What are the annual cash flow savings, if any, from the proposed bond- refunding decision if (1) the new bonds have an 8 percent coupon interest rate and (2) the new bonds have a 9 percent coupon interest rate?
|
|
What can you diversify
: What can You Diversify? If portfolio risk equals market risk, can the portfolio risk be diversifiable?
|
|
Calculate the annual interest paid each year
: Calculate the annual interest paid each year over the term of the loan, assuming that the payments are made at the end of each year.
|
|
Beta coefficient important when constructing a portfolio
: What Makes a Beta Coefficient so Great? What makes a beta coefficient important when constructing a portfolio?
|
|
Find the voltage regulation
: A 9 kVA, 208 V (L-L), 3-phase Y connected stator, synchronous generator has a stator resistance of 0.1 ohm per phase, and a synchronous resistance of 5.6 ohm per phase
|