Hand Written please no excel

hand written please no excel

Question 1 (35 marks) Dewey, Cheetham, and Howe Ltd. has had several successful years and greatly improved their financial position. As the new vice-president of finance, you are considering refinancing existing bonds with a new issue. You note in particular a bond issue that has the following details: $ 70,000,000 10 7 12.0% Maturity value of bond issue Time to maturity (in years) Time since initial bond issue in years) Annual coupon rate on existing bond Call Premium No call allowed during the first 5 years Starting call premium in year 6 Call premium declines by 0.5% per year staring in year 7 Current long-term interest rates on similar bonds Current short-term interest rates Overlap period (in months) Corporate tax rate Underwriting and other issue costs 14% 10.000% 5.5% 1 35% 1,100,000 $ Should the old issue be refunded and replaced with a debt issue with a comparable maturity and a coupon rate equal to that currently in effect on similar bonds? Show your calculations. Question 2 (35 marks) Dr. Emmett Brown Inc. has decided to acquire a time machine (instead of building another one). The details on this purchase follow. $ Cost of time machine Expected useful life of time machine (in years) Salvage value at end of useful life 78,000 4 8,000 $ Dr. Brown has two options on how to finance the time machine. Chili Palmer has agreed to advance funds for the entire purchase price, with the loan being payable in equal instalments at the end of each year over the five years. The interest rate on this loan would be 11.5% As an alternative, the machine could be leased over its useful life from the manufacturer with equal annual lease payments payable at the beginning of each year. Annual lease payment $ 14,000 Additional information is as follows: Dr. Emmett Brown Inc's tax rate CCA rate for time travel machines Annual maintenance costs (if Dr. Brown owns the machine) 32% 30% 2,100 $ Should the machine be leased or purchased? Show all calculations