I need help answering part D. from the question described in the graphic. "In terms of the refunding decision, how should Barton be influenced if he thinks interest rates may go down even more?"

Chapter: CH16 Problem 1CP A show all steps Question Barton Simpson. the chief financial officer of Broadband, Inc., could hardly believe the change in interest rates that had taken place over the last few months. The interest rate on A2 rated bonds was now 6 percent. The $30 million. 15-year bond issue that his firm has outstanding was initially issued at 9 percent CH16 1BPfive years ago CH16 1DC Because interest rates had gone down so much, he was considering refunding the bond issue. The old issue had a call premium of 8 percent. The underwriting cost on the old issue had been 3 percent of par and on the new issue, it would be 5 percent of par. The tax rate would be 30 percent and a 4 percent discount rate would be applied for the refunding decision, The new bond would have a lo-year life Before Barton used the 8 percent call provision to reacquire the old bonds, he wanted to make sure he could not buy them back cheaper in the open market. a.First compute the price of the old bonds in the open market. Use the valuation procedures for a bond that were discussed in Chapter 10 (use annual analysis). Determine the price of a single $1,000 par value bond b.Compare the price in part ato the 8 percent call premium over par value. Which appears to be more attractive in terms of reacquiring the old bonds? C. Now do the standard bond refunding analysis as discussed in this chapter. Is the refunding financially feasible? d. In terms of the refunding decision, how should Barton be influenced if he thinks interest rates might go down even more? We don't have the solution to this problem yet Get help from a Chegg subject expert. Ask an expert Was this solution helpful? 0