What factors would influence mullet decision to refund now

Assignment Help Financial Accounting
Reference no: EM133029590

Question- Mullet Technologies - Bond Refunding - Mullet Technologies is considering whether or not to refund a $75 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation costs on the 12% bonds over the issue's 30-year life. Mullet's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 10% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 10% any time soon, but there is a chance that rates will increase.

A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal-plus-state tax rate is 40%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6% annually during the interim period.

Required -

a. Conduct a complete bond refunding analysis. What is the bond refunding's NPV?

b. What factors would influence Mullet's decision to refund now rather than later?

Reference no: EM133029590

Questions Cloud

Identify a certain group of people in canada : 1) Identify a certain group of people in Canada. Be as specific as possible in your identification of them.
Describe a learning organization : How has Trillium's approach set it up to become an organization that continues to learn? In your answer define and describe a learning organization.
Identify any significant events or conditions : Identify any significant events or conditions that individually or collectively may cast significant doubt on DM's ability to continue as a going concern
What makes employees happy at work : Topic: Employee Engagement Instructions: five Video: What Makes Employees Happy at Work (about 3 minutes)
What factors would influence mullet decision to refund now : A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. What factors would influence
Create an emergency preparedness guide : Your long-term care facility has asked you as a member of human resources to join the company team to create an Emergency Preparedness Guide for your Assisted L
What are earnings before interest and taxes : The cost of goods sold was $6,600, general and administrative expenses were $1,100, What are earnings before interest and taxes
Design a presentation feedback : Arrange with management, staff, and other interested parties to attend the presentation on customers' service needs and strategies to improve customer service.
What is the expected total equipment maintenance cost : Question - Assume that 420,000 novels is the budgeted production level for December. What is the expected total equipment maintenance cost

Reviews

Write a Review

Financial Accounting Questions & Answers

  Explain why do think us accounting standards require accrual

Explain,Given the purpose of financial accounting, why do you think U.S. accounting standards require accrual basis accounting instead of cash basis accounting?

  What is the total amount of product cost listed

Lettman Corporation has provided the following partial listing of costs incurred during November: Marketing salaries ($45,000) Property taxes, factory ($9,000), Administrative travel ($98,000). What is the total amount of product cost listed above? W..

  Making the appropriate entries in the general journal

Record the following transactions by making the appropriate entries in the general journal. Apr 2 Write a $300 check to establish a petty cash fund

  What is the fair value today of a common share

What is the fair value today of a common share with expected annual dividends of $1.00, $1.05, and $1.10 in each of the next three years

  Describe what are included in such costs

Describe what are included in such costs. Pursuant to NZ IAS 16, if an item of Property, Plant and Equipment qualifies as an asset it must be recognised initial

  An increased extent of the tests of controls

An increased extent of the tests of controls is most likely to occur under which of the following situations?

  Determine the average inventory held during the year

The company is using Economic Order Quantity model in placing the orders. Determine the average inventory held during the year

  Explain the business risks that should be assessed

Identify and explain the business risks that should be assessed by the management of Keepfit

  Prepare the journal entry to record the issuance of the bond

Venezuela Co. is building a new hockey arena at a cost of $3,000,000. It received a down payment of $600,000 from local businesses to support the project, and now needs to borrow $2,400,000 to complete the project. Prepare the journal entry to record..

  Identify a way that john can turn potential fixed costs

Expand on John's thought. How are the large losses related to fixed costs and identify a way that John can turn potential fixed costs into variable costs.

  Determine and calculate the economic order quantity

Annual sales units required 10,000, Calculate the economic order quantity. Wilson Company is trying to figure out the most efficient inventory management.

  What is the probability that a randomly selected visa card

Question - What is the probability that a randomly selected Visa card issued by this bank has a balance between RM1000 and RM1400

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd