What is the bond refunding npv

Assignment Help Finance Basics
Reference no: EM131103034

Mullet Technologies is considering whether or not to refund a $75 million, 12 percent coupon 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation costs on the 12 percent bonds over the issue's 30-year life. Mullet's investment bankers have indicated that the company could sell a new 25-year issue at an interest rate of 10 percent in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 10 percent any time soon, but there is a chance that rates will increase. A call premium of 12 percent would be required to retire the old bonds and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal-plus-state tax rate is 40 percent. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6 percent annually during the interim period.
a. Perform a complete bond refunding analysis. What is the bond refunding NPV?
b. What factors would influence Mullet's decision to refund now rather than later? 

Reference no: EM131103034

Questions Cloud

Define lessee lessor operating lease financial lease : Define each of the following terms: a. Lessee; lessor b. Operating lease; financial lease; sale and leaseback; combination lease; synthetic lease; SPE c. "Off-balance sheet" financing; capitalizing
Calculate the total for each student : Calculate the total for each student - calculate the average for each of the assessments
List the advantages of a single customer service center : List the advantages of a single customer service center for RR Communications. Devise an implementation strategy that would guarantee the support of the Divisional Presidents for Shared Customer Service Center.
Stages of the business cycle : What are the 4 stages of the business cycle? Like when a business begins, grows, ends, etc. How do you know what stage a business is in?
What is the bond refunding npv : The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6 percent annually during the interim period.a. Perform a complete bond refunding analysis. What is ..
How effective is your agency current communication : How are the key publics that agency where you work or plan to work deals with? How effective is your agency's current communication with the various publics you deal with? Draw from your outside readings to give examples of what you could do to m..
As a sample size approaches infinity : As a sample size approaches infinity, how does the student's t distribution compare to the normal z distribution? When a researcher draws a sample from a normal distribution, what can one conclude about the sample distribution? Explain.
Business organization might experience : What are the four stages of growth a business organization might experience?
What went wrong with the tufs investment : Should Northern have invested in TUFS? What went wrong with the TUFS investment and what can be done to prevent these problems in the future? What does Northern need to do to realize the benefits that were projected for TUFS?

Reviews

Write a Review

Finance Basics Questions & Answers

  What are the advantages and disadvantages of short-term

what are the advantages and disadvantages of short-term

  What is the net income from this proposed project

The required rate of return is 15 percent and the tax rate is 28 percent. What is the net income from this proposed project? Please show all work - thanks.

  What does it mean if a firms bond rating is downgraded what

1 a company is trying to determine if they should issue a 6 semi-annual coupon bond with 10 years until maturity

  Describe a soundscape or two that you have heard recently

Describe a soundscape or two that you have heard recently. During this event, what instruments were playing, and what kind of music would you describe it to be?

  How health care organizations interpret corporate cost

Discuss how health care organizations interpret the corporate cost of capital and how that interpretation would be applied to capital investment decisions. explain your rationale.

  What is the dollar sales volume to reach the break-even

given the following dataavg selling price 500avg variable cost 350fixed costs 180000a what is the breakeven pt in units

  What required rates of return would make you indifferent

Capital Cities ABC, Inc. bonds with a par value of $1,000, that pays an 8.75 percent on its par value in interest, sells for $1,314, and matures in 12 years.

  What would the bond be worth at that point

Consider a 6% coupon bond that matures in 20 years.What would be the value of this bond if interest rates fall to 5% the day after it is purchased? If interest rates fell to 5% after one year, what would the bond be worth at that point?

  Calculation of expected return

XYZ Corporation stock has a 50% chance of producing a 30% return, a 25 percent chance of producing a 9% return, and a 25% chance of producing a -25 percent return.

  Returns and the bell curve

An investment has an expected return of 8% per year with a standard deviation of 4%. Assuming that the returns on this investment are at least roughly normally distributed, how frequently do you expect to lose money?

  What business risks does toll brothers face

How does Toll Brothers assign manufacturing overhead costs to cost objects? From a financial reporting standpoint, why does the company need to assign manufacturing overhead costs to cost objects?

  Organizational identification merger

Please critique the following article with  the literature review, methodology and state key findings.

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