Given information:

Unguaranteed Unsecured Debt:

7.7% notes due February 2027 ($236,478)

6.875% fixed-rate senior notes due December 2028 ($28,807)

Question: Assume that in consultation with its Investment Bankers, Rite Aid discovers that it could refinance its 6.875% bonds by issuing 5.9%, 20year bonds that pay interest semiannually. The existing bonds (the 6.875% bonds) are callable at 102. The new bonds will be issued on the date that the interest payment occurs in December (assume that date is December 1). The investment bankers believe that, unless the market changes drastically, the bonds will sell for approximately .025 less than the stated interest rate. As a fee for arranging this bond issue, the investment bankers will charge 2.76% of the maturity amount of the debt. Compute the following:

a.The amount that Rite Aid will have to pay to call and retire the existing debt

b.The gain or loss Rite Aid will record from retiring the bonds

c.The selling price for the new bonds (amount, and indicate whether this is maturity amount, sold at a premium, or sold at a discount)

d.The net amount of cash Rite Aid will receive from the bond issue, net of the flotation costs