Illustrate what is the total dollar call premium required

Assignment Help Financial Accounting

Reference no: EM13126919

Q. "Jan Volk, financial manager of Green Sea Transport (GST), has been asked by her boss to review GST's outstanding debt issues for possible bond refunding. Five years ago, GST issued $40,000,000 of 11%, 25 years debt. The issue, with semi-annual coupons, is currently callable at a premium of 11%, or $110 for each $1,000 par value bond. Flotation cost on this issue was 6%, or $2,400,000.

Volk believes that GST could issue 20 years debt today with a coupon rate of 8%. The firm has placed many issues in the capital markets during the last 10 years, and their debt flotation costs are currently estimated to be 4% of the issue's value. GST's federal-plus -tax rate is 40%. Illustrate what is the total dollar call premium required to call the old issue?

Reference no: EM13126919

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