FI_515_Bond_Refunding(1)

FI_515_Bond_Refunding(1) - $132,500 $45,050 $444,953 8....

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Bond Refunding Decision Worksheet Amount Amount Present Investment Outlay: t = 0 Before Tax After Tax Value @ 7.92% 1. Call Premium on Old Issue $(6,000,000) $(3,960,000) $(3,960,000) 2. Floatation Costs on New Issue $(2,650,000) $(2,650,000) $(2,650,000) 3. Tax Savings on Old Issue Floatation Costs $2,400,000 $816,000 $816,000 4. Extra Interest Cost on Old Issue $(750,000) $(495,000) $(495,000) 5. Interest Earned on Short-Term Investment $550,000 $363,000 $363,000 6. Net Investment Outlay at t =0 $(5,926,000) Annual Floatation Cost Tax Effects: t = 1-20 7. Annual Benefit from New Issue Floatation Cos
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Unformatted text preview: $132,500 $45,050 $444,953 8. Annual Lost Benefit from Old Issue Floatation $(120,000) $(40,800) ($402,976) 9. PV of Amortization Tax Effects $41,977 Savings Due to Refunding: t = 1-20 10. Interest Payment on Old Issue $9,000,000 $5,940,000 11. Interest Payment on New Issue $7,200,000 $4,752,000 12. Net Interest Savings $1,188,000 $11,733,727 NPV of Refunding Decision $5,849,703 Years to Maturity: 20 Tax Rate: 34.00% Bond Issue: $60,000,000 Old Rate: 15.00% New Rate: 12.00% Short-Term Rates: 11.00%...
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This note was uploaded on 11/15/2010 for the course FINANCE FI515 taught by Professor Haertel during the Spring '10 term at DeVry Denver.

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