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Charles River Associates is considering whether to call either of the two perpetual bond issues the company currently has outstanding. If the bond is called, it will be refunded, that is, a new bond issue will be made with a lower coupon rate. The proceeds from the new bond issue will be used to repurchase one of the existing bond issues. The information about the two currently outstanding bond issues is: Bond A Bond B Coupon rate 7 % ,8 % Value outstanding $ 144,000,000 , $ 151,000,000 Call premium 7.7 % , 8.7 % Transaction cost of refunding $ 13,400,000 ,$ 22,500,000 Current YTM 6.25 % , 7.0 % The corporate tax rate is 40 percent. What is the NPV of the refunding for each bond? (Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16)) Which, if either, bond should the company refinance? Bond A , Bond B , Refund both bonds , Neither bond?
The lower the interest expense ratio, the provision for loan loss ratio, the noninterest expense ratio, and the tax ratio the _______________ the _______________.
McCall Manufacturing has a WACC of 10%. The firm is considering two normal, equally risky, mutually exclusive, but not repeatable projects. The two projects have the same investment costs, but Project A has an IRR of 15%, while Project B has an IRR o..
Kristin Caldwell has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement programs are not. The other firm has a contributory plan that allows employees t..
Assume you can earm an average annual rate of return of 8.8 percent. your hope is that you will win the lottery today and be able to fund your retirement dream with one lump sum depsosit today. how much would you have to win, after taxes, to make ..
You can buy or sell a 6% $1000 par U.S. Treasury Note that matures in exactly 4 years (meaning it pays (.06/2)*1000 coupon payments every 6 months starting 6 months from now through maturity, and repays principal on maturity), with a current yield to..
An investment offers $3,300 per year for 19 years, with the first payment occurring one year from now. If the required return is 8 percent, the present value of the investment is $___. If the payments occurred for 34 years, the present value of the i..
Which yield curve theory is based on the premises that financial instruments of different terms are not substitutable and therefore the supply and demand in the markets for short-term and long-term instruments is determined largely independently?
Lamar Lumber buys $8 million of materials (net of discounts) on terms of 3/5, net 55; and it currently pays after 5 days and takes discounts. Lamar plans to expand, which will require additional financing. Assume 365 days in year for your calculation..
The state lottery's million dollar payout provides for $2 million to be paid over 24 years in 25 payments of $80,000. The first $80,000 payment is made immediately, and the 24 remaining $80,000 payments occur at the end of each of the next 24 years. ..
For the given cash flows below, assume the cash flow is the same in the next 2 years. Compute the NPV for each project, and compute the incremental IRR. Compare and explain why NPV always gives the correct decision. What is the best way to select a p..
A mining company is considering a new project. Because the mine has received a permit, the project would be legal; but it would cause significant harm to a nearby river. Calculate the NPV and IRR with mitigation. Calculate the NPV and IRR without mit..
Holding other variables constant, a decrease in the dividend growth rate would a) increase stock price, b) decrease stock price, c) have no effect on stock price, d)more information is needed to answer the question.
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