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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?
You are considering a 10-year, $1,000 par value bond. Its coupon rate is 9%, and interest is paid semiannually. If you require an "effective" annual interest rate (not a nominal rate) of 11.52%, how much should you be willing to pay for the bond? Do ..
What are the annual payments of the? loan? What is the total interest expense on the loan over the 5 years?
Duration is a better way to compare cash flows than simply comparing present values because
Corporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?
Determine the yield to call if the bonds are called on July 15, 2010 at $1,016.55.- Calculate the yield to maturity assuming the investor buys the bond at the given price, as quoted in the financial press.
Boatler Used Cadillac Co. requires $880,000 in financing over the next two years. Determine the total two-year interest cost under each plan.
What was the per month rate of change in the average selling price? What was the effective (EAR) annual rate of change?
Write an essay in which you evaluate what a business or government agency would need to consider before transferring a hardy but non indigenous species to another country.
What are the components of debt, preferred stock and common stock? What is the WACC?
In my company I could apply this to our potential projects by thinking of our variable costs as the hours charged by consultants to the projects they are working on, each additional billable hour that is produced will add incrementally to our cost so..
The Fix-it Shop has zero coupon bonds outstanding that mature in three years. The bonds have a face value of $1,000 and a current market price of $860. What is the company’s pre-tax cost of debt?
You want to invest money for 3 years in an account that pays 7 percent interest annually. How much would you need to invest today to reach a future goal of $5,000? What is the present value of $2,200, discounted at 10 percent interest per period, for..
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