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B12. (Net advantage of refunding) IBM has $150 million of 10% sinking-fund debentures out- standing. The issue amortizes in equal annual amounts at the ends

B12. (Net advantage of refunding) IBM has $150 million of 10% sinking-fund debentures out- standing. The issue amortizes in equal annual amounts at the ends of years 10, 11, and 12. The firm can call the bonds at 103%. Its new issue rate is 8% for 10-year debt, 8.5% for 11-year debt, and 9% for 12-year debt. Its marginal income tax rate is 40%. Which sinking-fund amounts should the firm call?

PLEASE ANSWER THE FOLLOWING QUESTIONS

Problem B12: For this problem from your course text, please choose an answer from the following for year 10.

a.

-$3,821,231; don't refund

b.

-$3,315,871; don't refund

c.

-$2,852,949; don't refund

d.

-$2,249,153; don't refund

e.

-$1,724,413; don't refund

f.

-$574,931; don't refund

g.

$574,931; refund

h.

$1,724,413; refund

i.

$2,249,153; refund

j.

$2,852,949; refund

k.

$3,315,871; refund

l.

$3,821,231; refund

Problem B12: For this problem from your course text, please choose an answer from the following for year 11:

a.

-$3,821,231; dont refund

b.

-$3,315,871; dont refund

c.

-$2,852,949; dont refund

d.

-$2,249,153; dont refund

e.

-$1,724,413; dont refund

f.

-$574,931; dont refund

g.

$574,931; refund

h.

$1,724,413; refund

i.

$2,249,153; refund

j.

$2,852,949; refund

k.

$3,315,871; refund

l.

$3,821,231; refund

Problem B12: For this problem from your course text, please choose an answer from the following for year 12.

a.

-$3,821,231; dont refund

b.

-$3,315,871; dont refund

c.

-$2,852,949; dont refund

d.

-$2,249,153; dont refund

e.

-$1,724,413; dont refund

f.

-$574,931; dont refund

g.

$574,931; refund

h.

$1,724,413; refund

i.

$2,249,153; refund

j.

$2,852,949; refund

k.

$3,315,871; refund

l.

$3,821,231; refund

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