View the step-by-step solution to: Jan Volk, financial manager of Green Sea Transport (GST), has

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Jan Volk, financial manager of Green Sea Transport (GST), has been asked by her boss to review GST's outstanding debt issues for possible bond refunding. Five years ago, GST issued $40,000,000 of 11%, 25 years debt. The issue, with semiannual coupons, is currently callable at a premium of 11%, or $110 for each $1,000 par value bond. Flotation cost on this issue were 6%, or $2,400,000.
Volk believes that GST could issue 20 years debt today with a coupon rate of 8%. The firm has placed many issues in the capital markets during the last 10 years, and its debt flotation cost are currently estimated to be 4% of the issue's value. GST's federal-plus -tax rate is 40%.
What is the total dollar call premium required to call the old issue?
What is the net after tax cost of the call?
What is the floation cost on the new issue?
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