FM11_Ch_19_P06_Build_a_Model

FM11_Ch_19_P06_Build_a_Model - is a chance that interest...

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Chapter 19. Ch 19-06 Build a Model Note: Fill in the shaded cells with the appropriate formula Current bond issue information Par value $75,000,000 coupon rate 12% original maturity 30 remaining maturity 25 original flotation costs $5,000,000 Call premium 12% Tax rate 40% New issue information Coupon rate 10.0000% maturity 25 flotation costs $5,000,000 Time between issues (months) 1 rate on surplus funds (annual) 6% a. Perform a complete bond refunding analysis. What is the bond refunding's NPV? Mullet Technologies is considering whether or not to refund a $75 million, 12 percent coupon, 30 year bond issue th 5 years ago. It is amortizing $5 million of flotation costs on the 12 percent bonds over the issue's 30-year life. Mull investment bankers have indicated that the company could sell a new 25-year issue at an interest rate of 10 percent market. Neither they nor Mullet's management anticipate that interest rates will fall below 10 percent any time soo
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Unformatted text preview: is a chance that interest rates will increase. A call premium of 12 percent would be required to retire the old bonds, and flotation costs on the new issue would $5 million. Mullet's marginal federal-plus-state tax rate is 40 percent. The new bonds would be issued 1 month be bonds are called, with the proceeds being invested in short-term government securities returning 6 percent annuall interim period. A B C D E F G 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 7/3/2003 that was sold llet's t in today's on, but there amount to efore the old lly during the H I 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36...
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FM11_Ch_19_P06_Build_a_Model - is a chance that interest...

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