Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

FINANCE EAM PROPOSED.docx - Word BEHRINCES MALINGS RIVEW VIEW The Juke Corporation is planning to replace its outstanding band issue of 100 million by putting

image text in transcribed

FINANCE EAM PROPOSED.docx - Word BEHRINCES MALINGS RIVEW VIEW The Juke Corporation is planning to replace its outstanding band issue of 100 million by putting up a new offering of C100 million bond issue into consideration. This new consideration is on the fact that there has been a decrease of interest rates since the last original issue and hence wants to take advantage. If the firm is within the thirty percent tax bracket, what follows is how the two bond issues are described. Features of old bonds: In respect of the outstanding bonds there is a 1,000 par value at 8.5% coupon rate. The bonds have a 20-year maturity and have been issued five years ago The corporation sold these bond at an initially price of c30 per bond at discount, with a floatation cost of c750,000, with a callable price of c1,085. Features of new bonds: There would be a 1000 par value for the new bonds with a maturity of 15 years at a coupon rate of 7.0%. The new bonds again can to be sold at their par value with a C600,000 expected floatation cost. The expected overlapping interest is scheduled by the firm to be a period of 3months as it tries to retire the old bonds. a. Estimate the investment's initial cost required to call the old bonds and issue the new bonds. b. With bond-refunding proposal, what would be the cash flow savings annual value if there should be, if any? c. If the firm's 4.9 percent after-tax cost of debt is used to evaluate its low-risk investment decisions, calculate the bond-refunding decision net present value (NPV). As an expert in bond valuation would you advise the firm to go ahead with the proposed refunding? Explain your

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management Theory And Practice

Authors: Eugene F Brigham, Michael C Ehrhardt

11th Edition

0324259689, 9780324259681

More Books

Students also viewed these Finance questions

Question

=+a. Can the reader find the most important message?

Answered: 1 week ago