Calculate amortized flotation cost as well as annual tax

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Reference no: EM13947164

A firm issued a callable bond 2 years ago. The bond's face value is $1 million. This bond now has 6 more years to mature but can be called at this time. The company is considering refinancing this bond. Total flotation cost at the time of issue was $140,000. Tax rate is 40 percent. Calculate the amortized flotation cost as well as the annual tax savings associated with the flotation cost.

A. Amortized flotation cost $7,000; Tax savings $17,500

B. Amortized flotation cost $17,500; Tax savings $7,000

C. Amortized flotation cost $23,333.33; Tax savings $9,333.33

D. Amortized flotation cost $125,000; Tax savings $50,000

Refer to the above bond refunding problem. If the bond is to be refinanced at this time, how much of the flotation cost is yet unexpended for tax purposes?

A. $17,500

B. $35,000

C. $105,000

D. $42,000

Reference no: EM13947164

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