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The Team is Considering whether or not to refund a $150 million, 14% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $6 million of flotation costs on the 14% bonds over the issue's 30-year life. The investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 11% in today's market.
Neither they nor the teams management anticipate that interest rates will fall below 11% any time soon, but there is a chance that rates will increase.
A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. The teams 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 7% annually during the interim period.
What is the bond refunding's NPV? Do not round intermediate calculations.
What factors would influence the decision to refund now rather than later?
The payments occur at the end of each year. Calculate the effective annual interest rate implied by this arrangement.
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In the adjourning stage the project is coming to an end and the team members are moving off into different directions. This stage looks at the team from the perspective of the well-being of the team rather than from the perspective of managing a t..
Calculate the standard deviation of Treasury bill returns and inflation over this time period.
Contingency funding never survives the review process. Once upper management realizes you have built in some funds to cover risks, they will cut it out and lower the bid. Determine real message behind this quote.
If the firm's required return (rs) is 14%, what is its current stock price (i.e. solve for Po)?
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a. If the firm's tax rate is 34%, calculate the project's APV.
The company's share price is 12.13 and the company has 308,820 shares outstanding. Compute the firms price-earnings ratio upto two decimal places.
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