User Account

All Pages

What is the cost to refinance the debt

Assignment Help Financial Management
Reference no: EM132059999

Worldwide Widget Manufacturing, Inc., is doing so well it decided to go ahead with its plan to expand. It issued $30 million in debt due in 30 years to finance the expansion at an 8 percent coupon rate.

The company makes interest-only, semiannual payments of $1,200,000 on this debt. Debt issued today would cost only 7 percent interest.

You have been asked to determine whether the company should issue new debt (for 25 years) to pay off the old debt.

If the company does so, it will have to pay $1.7 million as a "call Premium" to the existing debt holders, and also $1.4 million to its investment bankers to float the issue.

If the new debt was issued, what would be the semiannual interest payments savings or cost?

What is the cost to refinance the debt? What would be the present value of the semiannual savings in interest payments over the life of the debt?

Should you advise the company to replace the old debt with the new debt? Why?

Reference no: EM132059999

Questions Cloud

What would the lump sum be worth in twenty years : Using the last 5 year (or longest average available in history of investment if created less than five years ago) what would the lump sum be worth in 20 years?
Compute the net present value : Worldwide Scientific Equipment is considering a cash acquisition of Medical Labs for $1.3 million.
Why would a firm choose to issue a warrant or convertible : What are the key differences between firms that issue these types of financial instruments and those that do not?
What would be the interest earned during the second year : What would be the interest earned on a $6,000 deposit during the second year of its life if no money is withdrawn from the bank.
What is the cost to refinance the debt : The company makes interest-only, semiannual payments of $1,200,000 on this debt. Debt issued today would cost only 7 percent interest.
Would the dividend discount model be good ways to determine : Would the dividend discount model and the market to book value models be good ways to determine the intrinsic value of Jet Blue's stock?
What is the average return and standard deviation of returns : World Wide Widget Manufacturing, Inc., has decided to invest in some stock. As CFO, you have been asked to review the portfolio.
How much will be this balloon payment : At the end of the mortgage (in 30 years you must make a balloon payment; that is, you must repay the remaining balance on the mortgage.
Why heinz wacc is not the correct discount rate : You need to find the WACC for Coca-Cola. Assume the risk-free rate is 10-year Treasury Bond yield of 2.45% and the market risk premium is 7%.

Reviews

Write a Review

Financial Management Questions & Answers

  What is the internal rate of return of project

What is the internal rate of return of a project with a $ 40 comma 800 initial investment and expected net cash flows of $ 16 comma 900?, $ 16 comma 500?,

  The sale of ibm computers in france will be recorded

The contract size for one euro futures is 125,000 euros. Calculate your hedge ratio. The sale of IBM computers in France will be recorded as.

  Looking for certain life insurance fund

What are the considerations when you are looking for a certain life insurance fund?

  Impact on current-net working capital to total assets ratio

A company has current assets of $600,000, fixed assets of $500,000, current liabilities of $350,000, inventory of $300,000, and long-term debt of $500,000. If inventory decreases by $100,000 and current liabilities remain the same, what will be the i..

  Provides the lowest portfolio risk

Assume equal weights in Asset A and the 2nd asset you choose. You are to choose the asset that provides you the lowest portfolio risk.

  What annual payment is required to accumulate

The present value of $81,189 to be received in 16 years at 8.3% is how much? For an annuity in arrears, what annual payment is required to accumulate $662,399 in 8 years at an interest rate of 10.44? To stay "even" (same purchasing power) with inflat..

  What is the bond yield to maturity

What is the bond's yield to maturity. If the bond's yield to maturity changes to 9.2% APR, what will be the bond's price?

  What is the value of the movie

The cost of capital for the movie is 20.4 percent per year. What is the value of the movie?

  All conditions for put-call parity are satisfied

You are given that all conditions for put-call parity are satisfied. For the exercise price of $400, date of expiration June 28, 2012,

  Lowered inflationary expectations

Investors believe the yield on this this preferred stock should drop by 1% due to lowered inflationary expectations.

  How much will your stock be worth on april

Assuming no taxes, how much will your stock be worth on April 19?

  What yield did the lender earn on this loan

What is the initial payment on this mortgage? Assuming that you pay of the loan at the end of the third year, what yield did the lender earn on this loan?

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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