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What is effective dividend rate that the utility is paying

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Reference no: EM13881794

The Ester Municipal Water Utility issued 20-year bonds in the amount of $53 million for several high-priority fl ood control improvement projects. The bonds carried a 5.38% dividend rate with the dividend payable annually. The U.S. economy was in a recession at that time, so as part of the federal stimulus program, the Utility gets a 35% reimbursement on the dividend it pays.

(a) What is the effective dividend rate that the Utility is paying on the bonds?

(b) What is the total dollar amount the Utility will save in dividends over the life of the bonds?

(c) What is the future worth in year 20 of the dividend savings, if the interest rate is 6% per year?

Reference no: EM13881794

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