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The Robert Corp has $26 million of bonds outstanding that were issued at a coupon rate of 10.850 percent seven years ago. Interest rates have fallen to 10.150 percent. Mr. Brooks, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was 2.60 percent of the total bond value. The underwriting cost on the new issue will be 1.80 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a call premium of 7 percent starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent.
a. Compute the discount rate Do not round intermediate calculations and round your answer to 2 decimal places.)
b. Calculate the present value of total outflows. Do not round intermediate calculations and round your answer to 2 decimal places.)
c. Calculate the present value of total inflows. Do not round intermediate calculations and round your answer to 2 decimal places.)
d. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.)
Assume that Kish Inc. hired you as a consultant to help estimate its cost of capital. what is the cost of equity from retained earnings?
Which of the following items would not be classified as an operating activity on the statement of cash flows?
Suppose that a local restaurant is trying to evaluate the value of adding a food truck to their business. The restaurant is financed with a bank loan (debt) at 9.00% per year, and has owners (equity) who want a 15.00% annual return on their investmen..
You need to write a short research proposal (no more than 3 pages) to apply funding or scholarship.
Short term financial management - Read the article - Net Operating Working Capital Behavior: A First Look.
Be sure to include at least two ratios in each ratio category: liquidity, profitability, and solvency. Explain what each ratio means and what the ratio tells you about your organization's performance in the most recent period.
Suppose you sell a fixed asset for $128,000 when it's book value is $161,000. If your company's marginal tax rate is 28%, what will be the effect on cash flows of this sale (i.e., what will be the after-tax cash flow of this sale)?
Which one of the following risks is irrelevant to a well-diversified investor? systematic portion of a surprise non diversifiable risk systematic risk market risk unsystematic risk
The separation principle states that an investor will:
Prepare a statement of cash flows for 2014 using the direct method in the Operating Activities section. Prepare another statement of cash flows for 2014 using the indirect method in the Operating Activities section.
What is the effective cost of borrowing in this case?
Last year Lakesha’s Lounge Furniture Corporation had an ROE of 15.8 percent and a dividend payout ratio of 29 percent. What is the sustainable growth rate? What is the sustainable growth rate?
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