Reference no: EM132073894
The Robinson Corporation has $38 million of bonds outstanding that were issued at a coupon rate of 12.050 percent seven years ago. Interest rates have fallen to 11.050 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 3.80 percent of the total bond value. The underwriting cost on the new issue will be 2.40 percent of the total bond value.
The original bond indenture contained a five-year protection against a call, with a call premium of 8 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.) 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 aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent)
a. Compute the discount rate. (Do not round intermediate calculations. Input your answer as a percent rounded up to the nearest whole percent.)
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.)
|
What was rjss economic value added this year
: RJS generated $65,000 net income this year. The firm's financial statements also show that its interest expense was $40,000, its marginal tax rate was 35%.
|
|
What is the npv of the acquisition
: The purchase will cost $103.8 million and will generate cash flows that start at $15.2 million in one year and then at 4.1% per year forever.
|
|
Find the amount of his new annual payment
: He then refinances his loan by reducing his remaining payment period by 2 years and making level payments over the remaining time.
|
|
Has he reached the upper limit of debt obligations
: Robert's net worth is about $49,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property.
|
|
Compute the discount rate
: 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.
|
|
What is the amount of his new annual payment
: Robert is repaying a debt with 17 annual end-of-the-year payments of $800 each. At the end of the 4th year, he makes an extra payment of $1600.
|
|
How many must be sold each year for this to be a zero-npv
: If RJR sells the same number of Premiers every year for the next twenty years, how many must be sold each year for this to be a zero-NPV project.
|
|
What is her percent total return on this investment
: After one year, Robin sold the stock at a price of $19.50 share. What is her percent(%) total return on this investment?(10%)
|
|
Compute net cash provided by operating activity
: Accounts receivable and accounts payable at year-end were $144,180 and $55,269, respectively. Assume that accounts payable related to operating expenses.
|