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Should the old issue be refunded

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Question - Thea Corp. has a $10 million bond obligation outstanding which it is considering refunding. The bonds were issued at 12% and the interest rates on similar bonds have declined to 9%. The bonds have 12 years of their 20-year maturity remaining. Thea will pay a call premium of 8% and will incur underwriting costs of $400,000 immediately. The company is in a 40% tax bracket. There is no overlap interest period. Should the old issue be refunded?

Reference no: EM132766894

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