Help Save & Exit Check Problem 16-18 Refunding decision [LO 16-3] The Robinson Corporation has $27 million of bonds outstanding that were issued at a coupon rate of 10.950 percent seven years ago. Interest rates have fallen to 10.250 percent. Mr. Brooks, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was 2.70 percent of the total bond value. The underwriting cost on the new issue will be 1.80 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 6 percent call premium starting in the sixth year and scheduled to decline by one- half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent). a. Compute the discount rate. (Do not round intermediate calculations. Input your answer as a percent rounded up to the nearest whole percent.) Discount rate % Check b. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) PV of total outflows c. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) PV of total inflows Prey 12 of 15 Next > Intermediate calculations and round your answer to 2 decimal place: PV of total inflows d. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value Parch Appendix D Present value of an annuity of $1, PVA 1 PV = A 1 (1 + Y Percent 3% Period 1 2% 0.980 6% 7% 8% 9% 4% 0.962 11% 0.901 12% 0.893 0.917 2 3 1.942 2.884 3.808 4.713 0.926 1.783 2.577 3.312 1.886 2.775 3.630 4.452 5242 5.242 1.759 2.531 3.240 4 10% 0.909 1.736 2.487 3.170 5 1.713 2.444 3.102 3.696 4.231 4.712 6 5.601 7 5.146 8 . 9 10 10 1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 20 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046 22.023 25.808 6.002 6.733 7.435 8.111 8.760 11 12 13 0.971 1.913 2.829 3.717 4.580 5.417 6.230 2000 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.877 17.413 19.600 5% 0.952 1.859 2.723 3.546 .. 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 14.094 15.372 17.159 18.256 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 12.783 13.765 15.046 15.762 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 31.424 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 0.330 10.594 11.654 12.409 13.332 13.801 14 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 won 7.103 7.367 1.36 wowo 7.606 7.824 8.022 8.201 8.365 0.30 8.514 9.077 9.427 9.779 9.915 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 15.622 17.292 19.793 21.482 15 1.690 2.402 3.037 3.605 4.111 4.564 9.30 4.968 5.328 5.328 5.650 5.938 6.194 0.13 6.424 6.628 6.811 6.974 7.120 7.250 7.366 SO 7.469 7.843 8.055 8.244 8.304 16 8.313 5.537 5.889 2.00 6.207 6.492 2 6.750 6.92 0.982 7.191 19 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 17 18 8.851 9.122 9.372 9.604 00 9.818 10.675 11.258 11.925 12.233 19 20 8.544 8.756 8.950 9.129 9.823 10.274 10.757 10.962 25 30 40 50 32.835 39.196 23.115 25.730