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This is the question:
"First Inc. is considering the possibility of refunding its 40-year $200 million outstanding bond issue. The coupon rate of the old issue is 14% (assume all coupons are paid annually in this question) and was issued 20 years ago. It can be refunded with a new 20-year $200 million issue at a coupon rate of 10%. A call premium of 8% will have to be paid and floatation costs on the new issue are expected to be $6 million. The new bonds will have to be issued one month before the old bonds are called and the proceeds can be parked in the money market to earn 6% (compounded monthly). The company's tax rate is 30%. Calculate the NPV of the proposed refunding."
Where I have trouble is figuring out how to get the discount rate to calculate PV of flotation cost tax savings
Finance is about Gunns Ltd, a company in dealing with forestry products in Australia. The company has also been listed in Australian Stock Exchange. As many companies producing forestry products, even Gunns Ltd is facing various problems. Due to the ..
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