Blue Mountain Distributors has a $40 million bond outstanding that carries a 12 percent coupon rate...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Blue Mountain Distributors has a $40 million bond outstanding that carries a 12 percent coupon rate paid annually. Current bonds yield are 9.5 percent. The $40 million bond was issued 20 years ago with 30 years to maturity and carries a call premium of 5%. With the fall in interest rates the company's Finance Manager has recommended that the bond be refunded. The new bond issue would require $1.2 million in underwriting cost and an overlap period of one month is anticipated. Short term money market rates are currently 7 percent and Blue Mountain has a tax rate of 40 percent. Required: Advise Blue Mountain Distributors on whether or not they should refund the bond. (Show all calculations) (15 marks) Blue Mountain Distributors has a $40 million bond outstanding that carries a 12 percent coupon rate paid annually. Current bonds yield are 9.5 percent. The $40 million bond was issued 20 years ago with 30 years to maturity and carries a call premium of 5%. With the fall in interest rates the company's Finance Manager has recommended that the bond be refunded. The new bond issue would require $1.2 million in underwriting cost and an overlap period of one month is anticipated. Short term money market rates are currently 7 percent and Blue Mountain has a tax rate of 40 percent. Required: Advise Blue Mountain Distributors on whether or not they should refund the bond. (Show all calculations) (15 marks)
Expert Answer:
Answer rating: 100% (QA)
Analysis 1 Call Cost The call premium on the 40 million bond is 5 so the call cost would be calculated as follows 5 40000000 2000000 2 Current Market ... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259194078
15th edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen
Posted Date:
Students also viewed these finance questions
-
The research topic is Factors that drive donor support to cultural organizations in kenya. Describe the dependent variable as donor support in form of financial aid and the independent variable as...
-
Planning is one of the most important management functions in any business. A front office managers first step in planning should involve determine the departments goals. Planning also includes...
-
Consider Problem 13.28. The solvent MDEA becomes rich in acid gases. To recycle this solvent, it is first heated to 90C in exchanger E-2001 and then sent to the top stage of the stripper T-2002 as...
-
The total market value of Okefenokee Real Estate Company's equity is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and...
-
Rita is a self-employed taxpayer who turns 39 years old at the end of the year (2014). During 2014, her net Schedule C income was $300,000. This was her only source of income. This year, Rita is...
-
When would you use a motion to strike?
-
The Buffalo Snow Shoe Company is considering manufacturing radial snow shoes, which are more durable and offer better traction. Buffalo estimates that the investment in manufacturing equipment will...
-
Hinsdale Corp. issues 1,000 shares of $3 par value common stock at $20 per share. Later in the year, the company repurchased 200 shares at a cost of $22 per share. 1. Record the journal entry for the...
-
Find the volume of a beverage can that has a height of 6.8 in. and a diameter of 3.6 in. Use 3.14 as an approximation for The volume of the can is (Type an integer or a decimal rounded to the nearest...
-
What are your three strongest attributes?
-
Scan the Web and identify the Internet marketing techniques of two to three companies. Start with the companys home page. What functionality does the page contain (just information, online selling...
-
What data have you gathered about your opportunity? a. What do these data suggest as far as reshaping your opportunity? b. What new questions do they raise, and who should you talk to in order to...
-
Does your executive summary have a compelling hook?
-
Scan Monster.com, Salary.com, and other job sites. Look at the postings for CEO and other key employees of earlystage companies in the industry that you are interested in pursuing. What skills are...
-
Listen to this video on You tube and answer the following questions: https://www.youtube.com/watch?v=ehZzU8hWv-4&feature=emb_title 1. Catastrophe bonds are an example of which of the following?...
-
Is that Yelp review real or fake? The article A Framework for Fake Review Detection in Online Consumer Electronics Retailers (Information Processing and Management 2019: 12341244) tested five...
-
The Goodsmith Charitable Foundation, which is tax-exempt, issued debt last year at 9 percent to help finance a new playground facility in Los Angeles. This year the cost of debt is 25 percent...
-
The Hudson Corporation makes an investment of $24,000 that provides the following cash flow: YearCash Flow 1 .........$ 13,000 2 ......... 13,000 3 ......... 4,000 a. What is the net present value at...
-
It has often been said that if the company cant earn a rate of return greater than the cost of capital, it should not make investments. Explain.
-
A certain bon vivant, wishing to ascertain the cause of his frequent hangovers, conducted the following experiment. On the first night, he drank nothing but whiskey and water; on the second night, he...
-
Use a simulator to design a compression system with intercoolers to compress \(600 \mathrm{lb} / \mathrm{hr}\) of a mixture of \(95 \mathrm{~mol} \%\) hydrogen and \(5 \mathrm{~mol} \%\) methane at...
-
In a reboiled absorber, operating as a deethanizer at 400 psia to separate a light hydrocarbon feed, conditions at the bottom tray are: Liquid Phase Molar flow = 1, \(366 \mathrm{lbmol} /...
Study smarter with the SolutionInn App