Description of this paper

Use formulas and functions to complete the require...

Description

Solution


Question

Use formulas and functions to complete the requirements of this problem. Information Bond obligation $20,000,000 Interest rate on bonds 12% Interest rate on new bonds 10.5% Call premium 8% Tax rate 35% Underwriting costs of new issue $570,000 Underwriting costs of old issue $400,000 Years remaining on bonds 15 Discount rate 7% Outflows After tax cost of call FORMULA Underwriting cost on new issue Actual expenditure $570,000 Amortization of Costs FORMULA Present value of future tax savings FORMULA Net cost of underwriting expense FORMULA Inflows Cost savings in lower interest rates: Interest on old bonds FORMULA Interest on new bonds FORMULA Savings per year before taxes FORMULA Aftertax Savings per year FORMULA Present value of savings FORMULA Underwriting cost on old issue Original amount $400,000 Amount written off over 5 years FORMULA Unamortized old underwriting cost FORMULA Present value of deferred future write-off FORMULA Immediate gain in old underwriting cost write-off FORMULA After-tax value of immediate gain in old underwriting cost write-off FORMULA PV of Inflows FORMULA PV of Inflows FORMULA Net present value FORMULA Should the old issue be refunded with new debt?

 

Paper#7021 | Written in 18-Jul-2015

Price : $25
SiteLock