Reference no: EM13965802 , Length:

One of the projects the loan would fund is to build earthquake-resistant buildings.

The project will begin in March 2015, last for two years and is expected to have the following expenditures: start-up costs of $200,000 paid at the beginning of the first month; rental of equipment to be paid at the beginning of the month that will be $100,000 each month for the first year, but $50,000 each month for the second year; material costs to be paid at the end of each month that will be $30,000; personnel costs of $100,000 to be paid at the end of each month; and end-of-project clean-up costs of $100,000 that will be paid at the end of the last month (February 2017).

Canada is only willing to allocate $3,000,000 of the loan at the start of the project. These funds are put into an account that pays interest at a stated annual rate of 12 percent, compounded monthly.

Calculate how much this project needs at the beginning of the second year that would be necessary to cover its expected expenditures.

Telus Corporation is considering whether to take advantage of historically low Canadian interest rates and lower its cost of debt by refunding its old bonds. Telus has a $40million bond issue outstanding with a 12 percent annual coupon. These 15 year bonds were sold 5 years ago, and can be called in at a 10% call premium. According to investment bankers, the firm can sell $50million, 10 year bonds with an annual coupon rate of 8 percent, and flotation costs of $5million. Telus' marginal tax rate is 40%. The new bonds will be sold one month before the old issue is called, and funds can be invested in treasury bills yielding 8%. The additional $10million from the new bond issue could be invested in a 10 year project which would yield expected benefits of a positive NPV of $3.5million. Should Telus proceed with the refunding?

Rogers Communication is considering whether to take advantage of historically low Canadian interest rates and lower its cost of debt by refunding its old bonds. Rogers has a $50million bond issue outstanding with a 12 percent annual coupon. These 15 year bonds were sold 5 years ago, and can be called in at a 10% call premium. According to investment bankers, the firm can sell $60million, 10 year bonds with an annual coupon rate of 8 percent, and floatation costs of $5million. Rogers' marginal tax rate is 40%. The new bonds will be sold one month before the old issue is called, and funds can be invested in treasury bills yielding 8%. The additional $10million from the new bond issue could be invested in a 10 year project with an expected NPV of $2.5million. Should Rogers proceed with the refunding? The answer should show all four working steps.