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Should the old issue be refunded with new debt

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Reference no: EM132499303

Point 1: The Delta Corporation has a $30 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 7 percent payable annually, the interest rates on similar issues have declined to 4.6 percent. The bonds were originally issued for 10 years and have 6 years remaining. The new issue would be for 6 years. There is a 5 percent call premium on the old issue. The underwriting cost on the new $30 million issue is $600,000, and the underwriting cost on the old issue was $750,000. The company is in a 25 percent tax bracket, and it will allow a one-month overlap period. Treasury bills currently yield 1 percent.

Question 1: Should the old issue be refunded with new debt?

Reference no: EM132499303

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