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Problem 1 6 - 2 0 ( modified ) The Harding Corporation has $ 5 1 . 8 million of bonds outstanding that were issued
Problem modified
The Harding Corporation has $ million of bonds outstanding that were issued at a coupon rate of percent seven years ago.
Interest rates have fallen to percent. Preston Alter, the vicepresident of finance, does not expect rates to fall any further. The
bonds have years left to maturity, and Preston would like to refund the bonds with a new issue of equal amount also having years
to maturity. The Harding Corporation has a tax rate of percent. The underwriting cost on the old issue was percent of the total
bond value. The underwriting cost on the new issue will be percent of the total bond value. The original bond indenture contained
a fiveyear protection against a call, with an percent call premium starting in the sixth year and scheduled to decline by onehalf
percent each year thereafter Consider the bond to be seven years old for purposes of computing the premium Use Appendix
a Compute the discount rate. Round the final answer to decimal places.
Discount rate
b Calculate the present value of total outflows. Enter the answers in whole dollars, not in millions. Round PV Factor" to decimal
places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.
Total outflows
c Calculate the present value of total inflows. Enter the answers in whole dollars, not in millions. Round PV Factor" to decimal
places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.
Total inflows $
d Calculate the net present value. Enter the answers in whole dollars, not in millions. Round PV Factor" to decimal places. Do
not round intermediate calculations. Round the final answer to nearest whole dollar. Negative amount should be indicated by a
minus sign.
Net present value $
e Should the Harding Corporation refund the old issue?
Yes
No
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