Illustrate what interest rate would firm want to refinance

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Reference no: EM13123668

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

a. At what interest rates would the firm want to refinance?

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

Reference no: EM13123668

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