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The Sunbelt Corporation has $37 million of bonds outstanding that were issued at a coupon rate of 11.475 percent seven years ago. Interest rates have fallen to 10.75 percent. Mr. Heath, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Mr. Heath would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Sunbelt Corporation has a tax rate of 36 percent. The underwriting cost on the old issue was 2.4 percent of the total bond value. The underwriting cost on the new issue will be 1.3 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). 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.
Calculate the value of a bond that expects to mature in 10 years and has a $1000 face value. The coupon interest rate is 12% that paid semiannually and the investor's required rate of return is 20%.
Wheeler Company had retained earnings as of 12/31/08 of $12 million. During 2009, Wheeler's net income was $4 million. Retained earnings balance at the end of 2009 was equal to 13 million dollar.
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The Florida lottery agrees to pay the winner $244,000 at the end of each year for the next 20 years. What is the future value of this prize if each payment is put in an account earning 0.09?
Suppose Conch Republic loses sales on other models because of the introduction of the new model. How would this affect your analysis?
What is the price of a 6-month Treasury Bill with a stated yield of 2.50%?
At one time many customers turned to Sears for home improvement projects. As the economy boomed many warehouse stores began to open their doors.
What net benefit (cost) will the firm realize if it adopts the lockbox system? Should it adopt the propsed lockbox system?
Suppose a firm has a retention ratio of 45 percent, net income of $30.3 million, and 5.3 million shares outstanding. What would be the dividend per share paid out on the firm's stock?
The next dividend payment by Blue Cheese, Inc., will be $1.64 per share. The dividends are anticipated to maintain a growth rate of 8 percent forever. If the stock currently sells for $31 per share, what is the required return?
Suppose that a fifteen year, $1,000 face value bond pays interest of $37.50 every 3 months. If you require a nominal annual rate of return of 12%, with quarterly compounding,
Discuss and explain how the funding of higher education can be divided up by the following main sources?
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