Reference no: EM131317558
High-Gearing Incorporated is considering offering a new $40 million bond issue to replace an outstanding $40 million bond issue. The firm wishes to take advantage of the decline in interest rates that has occurred since the original issue. The two bond issues are described in what follows. The firm is in the 40 percent tax bracket. Old bonds.
The outstanding bonds have a $1,000 par value and a 10 percent coupon interest rate. They were issued five years ago with a twenty- five-year maturity. They were initially sold at a $25 per bond discount, and a $200,000 flotation cost was incurred. They are callable at $1,100.
New bonds. The new bonds would have a twenty-year maturity, a par value of $1,000, and a 7.5 percent coupon interest rate. It is expected that these bonds can be sold at par for a flotation cost of $250,000. The firm expects a three-month period of overlapping interest while it retires the old bonds.
a. Calculate the initial investment that is required to call the old bonds and issue the new bonds.
b. Calculate the annual cash flow savings, if any, expected from the proposed bond-refunding decision.
c. If the firm uses its after-tax cost of debt of 4.5 percent to evaluate low-risk decisions, find the net present value (NPV) of the bond-refunding decision. Would you recommend the proposed refunding? Explain your answer.
Calculate the after tax cost of the call premium
: Calculate the tax savings that are expected from the unamortized portion or the old bonds' flotation cost.- Calculate the after-tax cost of the call premium that is required to retire the old bonds.
|
Calculate the value of sam equity before
: 1. Calculate the value of Sam equity before and after the additional investment of $100MM. 2. How will the $100MM NPV gain be divided between bondholders and stockholders
|
Discuss the interpretation of energy storage in the electric
: Discuss how the fields far from a physical antenna vary inversely proportional to the distance from the antenna.
|
Identify government policies on competition
: Identify government policies on competition. Explain concepts of microeconomics. Describe supply and demand from a microeconomics perspective. Explain market influences such as consumers, products, and profits on business strategies.
|
Calculate the annual cash flow savings
: Calculate the initial investment that is required to call the old bonds and issue the new bonds.- Calculate the annual cash flow savings, if any, expected from the proposed bond-refunding decision.
|
National trucking has paid annual dividend
: National Trucking has paid an annual dividend of $1.00 per share on its common stock for the past fifteen years and is expected to continue paying a dollar a share long into the future. Given this, one share of the firm's stock is:
|
What is the firm levered value
: The firm can borrow money at 6.75 percent. Currently, the firm is considering converting to a debt-equity ratio of 0.45. What is the firm's levered value
|
What would be the production possibility frontier for brazil
: What would be the production possibility frontiers for Brazil and the United States? Without trade, the United States produces AND CONSUMES 32,500 units of clothing and 125,000 cans of soda.
|
Find the peak value of the electric field intensity
: For an antenna radiating a time-average power of 150 kW, find the peak value of the electric field intensity at a distance of 100 km from the antenna. Assume the antenna to be radiating equally in all directions.
|