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Bob Technologies is considering whether or not to refund a $70 million,

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Bob Technologies is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $4 million of flotation costs on the 10% bends over the issue`s 30-year life. Bob`s investment banks have indicated that the company could see a new 25-year issue at an interest rate of 8% in today`s market. Neither they nor Bob`s management anticipated that interest rates will fall below 8% any time soon, but there is a chance that rates will increase. A call premium of 10% would be required to retire the old bonds, and flotation cots on the new issue would amount to $5 million. Bob`s marginal federal plus-state tax rate is 40%. Conduct a complete bind refunding analysis. What is the bond refunding`s NPV? Should they refund the bonds?

 

Paper#23258 | Written in 18-Jul-2015

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