What would be net present value of refunding for bond issuer

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Case Study: Senior Care enterprises - Bond Refunding

1. If the bond was recalled at the end of 5 years, what would be the yield to call (YTC) for those who purchased the bond when it was issued?

2. Given the information given, what would be the Net Present Value of Refunding for the bond issuer? Show all your calculations. Should the firm proceed with refunding the bonds?

Since it is assumed to be a not-for-profit organization, interest rates before and after will be 6% and 5% respectively. (Remember that not-for-profit cost of debt is generally lower because interest income is not taxable)

3. Assuming that the bond issuer was a not-for-profit organization (costs cannot be amortized for tax savings and there are no tax deductions for costs incurred in year 0), what is the NPV of refunding? (Show your calculations) Should the organization refund the bond?

Reference no: EM13879756

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