Makes the npv of calling the old bond zero

Assignment Help Financial Management

Reference no: EM131899704

East Inc. has $450,000 (face value) callable bond outstanding. This bond pay 15% annual coupons, has maturity of 26 years and is callable at par value plus three annual coupons. Currently, East’s borrowing cost drops to 8%, so it is considering calling the bond and replacing it with a new issue that also pays 8% annual coupons. The flotation cost for the new issue is $13,500. East has to issue the new bond 30 days before calling the old bond and will temporary invest the proceeds in 30-day Treasury Bill that yields 3%. The tax rate is 30%. a. What is the NPV of calling the old bond? b. Suppose the call premium is X% of the total nominal (undiscounted) interest saved instead, what value of X that makes the NPV of calling the old bond zero?

Reference no: EM131899704

Questions Cloud

Analyze the notification letter : Using the library and other available Internet sources, search for an example of an official breach notification letter. Analyze the notification letter.

Evolutionary process fundamentally predictable : Are some outcomes of the evolutionary process fundamentally predictable (or inevitable)? Is the path of evolution is guided by deeper principles?

Discuss various types of consent forms : What are The Joint Commission's requirements regarding a patient's medical record? Why is it vitally important to enter

Did victory have an insurable interest : Victory Container Corporation was owned by the three Radin brothers. Two of those brothers also owned the Warrensburg Paper and Board Corporation.

Makes the npv of calling the old bond zero : Suppose the call premium is X% of the total nominal (undiscounted) interest saved instead, what value of X that makes the NPV of calling the old bond zero?

Teleological argument from fine-tuning : According to Murray and Rea what is the "multiverse objection" to the teleological argument from fine-tuning? Do they find this objection plausible?

Venture investors usually buy common stock in firms : Venture investors usually buy common stock in firms. Modern venture capital investment dates back to before World War I.

Lifestyle and decline in cardiovascular disease : What relationships exist between changes in lifestyle and decline in cardiovascular disease in the United States and other industrialized nations?

Create an application role named midtermapp : Create an Application Role named MidtermApp, and give it your default password. Create the following users and groups on the local Windows Server.

User Account

All Pages