Answered step by step
Verified Expert Solution
Question
1 Approved Answer
please provide your answer with the calculation! thanks:) Transistor Group issued 20-year bonds 8 years ago at par, when the yield-to- maturity on the issue
please provide your answer with the calculation!
Transistor Group issued 20-year bonds 8 years ago at par, when the yield-to- maturity on the issue was 10.0 percent. Since then, the yield-to-maturity has declined to 9.0 and the company is considering refunding the $8 million outstanding. They would replace it with an issue of equal size, for the number of years remaining of the original issue. The company would have to pay a call premium of 6.0 percent on the old issue and underwriting cost on the new $8 million issue is $300,000. The company is in a 40.0 tax bracket, and there will be an overlap period of 1 month. Treasury Bills currently yield 3.0 percent per year. [1] Required: A. Enter the discounted present value for each of the relevant cash flows in the table below: Enter the discount rate with two decimal places. (e.g. 12.34%) Round all cash flow numbers to zero decimal places. Enter cash outflows as negative numbers. Enter 'Net' numbers for each cash flow. (e.g enter underwriting costs net of tax.) Discount rate used: Call premium Interest savings Underwriting costs (net) Overlap period (net) Net Present Value B. Should the corporation refund the bond thanks:)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started