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How long will take before the present value of the interest

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A firm has $45,000,000 of preferred shares outstanding that have a yield of 10% on par and are callable at a 3% premium. New issues will cost $980,000 in issuing and underwriting expenses.

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Problem a) At what interest rate would the firm want to refinance?

Problem b) If the dividend yield drops to 8%, then how long will it take before the present value of the interest savings exceeds the cost of refinancing?

Reference no: EM132935090

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