Calculate the present value of total outflows

Assignment Help Financial Accounting
Reference no: EM133016457

Question - The Robinson Corporation has $28 million of bonds outstanding that were issued at a coupon rate of 11.050 percent seven years ago. Interest rates have fallen to 10.550 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 2.80 percent of the total bond value. The underwriting cost on the new issue will be 1.90 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 6 percent call premium 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.) Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the after tax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent).

Required -

a. Compute the discount rate.

b. Calculate the present value of total outflows.

c. Calculate the present value of total inflows.

d. Calculate the net present value.

Reference no: EM133016457

Questions Cloud

Example of an innovative process : Select an example of an innovative process that has resulted in a significant change in the K-12 education system. What factors contribute to the success?
Key insights and starbucks relationship from literature : Visual model (summary of key insights and Starbucks's relationship from the literature)
Governance is not applicable for a family business : You friend is running a fitness business with his brother which is operating in Brisbane, Sydney and Melbourne. You friend is asking for your advice regarding g
Calculate the price paid by khalil ltd : On 1 January 20X8, Khalil Ltd. purchased $1.200,000 of six year, Harvest Lid. 10.8% bonds. Calculate the price paid by Khalil Ltd
Calculate the present value of total outflows : Assume the discount rate is equal to the after tax cost of new debt rounded up to the nearest whole percent. Calculate the present value of total outflows
What would be the total interest expense for year six : Bob does not have any other liabilities other than the those from the above transaction, what would be the total interest expense for Year 6
What does this ratio mean to this business : Terry has another trading business that is expecting to sell 1,250 units of products at $12 per unit, What does this ratio mean to this business
What is the portfolio beta : A portfolio is invested 40 percent each in Stock L with a beta of 1.48 and Stock K with a beta of 1.05. What is the portfolio beta
Complete the entry required to reinstate the raj co account : On June 2nd, the Raj Co. received an inheritance and was able to remit payment of 500 to Priya Co. Complete the entry required to reinstate

Reviews

Write a Review

Financial Accounting Questions & Answers

  What was the variable overhead efficiency

Shawl Corporation's variable overhead is applied on the basis of direct labor-hours. The standard cost card for product F02E specifies 5.5 direct labor-hours per unit of F02E. What was the variable overhead rate variance for the month? What was the v..

  Cash dividend is declared

What journal entries are required when a cash dividend is declared.

  In which building would you recommend that K Company locate

Purchase for a cash price of $600,000, useful life 25 years. In which building would you recommend that K Company locate, assuming a 12% cost of funds

  Compute the bonds expected rate of return

Determine the value of the bond to? you, given your required rate of return. Compute the? bond's expected rate of return. Should you purchase the? bond?

  Calculate the cost of the plant as at january

Prepare the Jouranl Enteries in the General Journal for the end of Years. Calculate the Cost of the Plant as at 01 January 2016 Fair Value

  Calculate Hidden Widgets expected operating income

Calculate Hidden Widgets' expected operating income and RNOA for the next 3 years under the assumption that software R&D costs are expensed immediately

  Determine the correct december inventory balance

Determine the correct December 31, 2021, inventory balance and, assuming that the errors were discovered after the 2021 financial statements were issued

  What amount of net proceeds is received on issuance of bonds

What amount of interest expense related to this bond payable will Batwana report for its 20X3 fiscal year? What amount of net proceeds is received on issuance

  What is the risk free rate

What is the risk free rate that should be included in the formula prior to the MRP calculation? There are lots of options, explain your selection

  What will be the issuance price of the bonds

If the market rate of interest at the time the bonds are sold is 10%, what will be the issuance price (approximate) of the bonds

  Why is attainable in the set criteria for business

Create own business rules following the set criteria (realistic, workable, attainable, achievable and practical) and explain why is it attainable.

  Alternative production procedures and operating leverage

Alternative Production Procedures and Operating Leverage Assume Paper Mate is planning to introduce a new executive pen that can be manufactured using either a capital-intensive method or a labor-intensive method. Determine the annual unit volume at ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd