# a1f10 - AP/ADMS 4540 Financial Management Fall 2010...

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AP/ADMS 4540 Financial Management Fall 2010 Instructor: Dr. William Lim Assignment 1 Solve all problems by hand using a calculator. Each problem is worth 25 marks. No credit will be given if you do not present step-by-step calculations, and your answers must be handwritten and not photocopied. The assignment must be completed individually , and is due in class on Thursday October 7. Under no circumstances will faxed or e-mailed assignments be accepted. Problem 1 McGraw-Hill Ryerson (MHR) is considering whether to refund an old issue of \$30 million, 12 percent coupon (paid yearly) 20-year bonds that were sold 5 years ago. A new issue of \$30 million, 15-year bonds can be sold with a coupon rate of 8 percent (paid yearly). A call premium of 8 percent will be required to retire the old bonds and floatation costs of \$2 million will apply to the new issue. The marginal tax rate applicable is 40 percent and MHR expects that there will be a one month overlap during which any funds can be invested in t- bills yielding 8 percent. Should MHR refund?

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