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What is the maximum amount the firm could afford to pay

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Question: A firm has to decide whether to replace an existing $42,000,000, 14-percent debenture that has 18 years to maturity and is callable at a 7-percent premium, with a similar 18- year issue at a coupon rate of 12 percent. What is the maximum amount the firm could afford to pay in after-tax issuing and underwriting expenses for refunding to be feasible? The firm's tax rate is 40 percent and interest is paid annually.

Reference no: EM131750000

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