Q4 - Review pictures.
The Harding Corporation has $50 million of bonds outstanding that were issued at a coupon rate of 10.25 percent seven years ago. Interest rates have fallen to 9 percent. Preston Alter, the vice-president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Preston would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Harding Corporation has a tax rate of 25 percent. The underwriting cost on the old issue was 2.5 percent of the total bond value. The underwriting cost on the new issue will be 1.8 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with an 8 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. (Round "PV factor" to 3 decimal places.) a. Compute the discount rate. (Round the final answer to 2 decimal places.) Discount rate b. Calculate the present value of total outflows. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answer to nearest whole dollar.) Total outflows $ c. Calculate the present value of total inflows. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answer to nearest whole dollar.) Total inflows d. Calculate the net present value. (Do not round intermediate calculations. Round the final answer to nearest whole dollar.] Net present value $ e. Should the Harding Corporation refund the old issue? O Yes O NoPresent Value of an Annuity of $1, PV PV, - A Percent Perlod 10% 11%% 0.490 016 0 0.901 1.942 1.H.54 1.H13 1.783 1.754 1.719 2.041 2.775 2.723 2.577 2 487 2.444 3.902 3.630 3.546 3.312 3.102 5,601 5,076 4.486 1 355 4.231 6.472 5.786 5.189 5.206 7 652 7.325 6.735 6,463 5-395 5.146 6. 162 7.435 7.108 6.515 6.247 CH6 1 7.04 6.710 10 364 4,7H7 9.253 3.304 7.149 6,2017 11 255 10.575 9.954 9.385 8.863 7.043 7.536 7.161 12. 134 9.90 7.100 8.760 7.367 19 865 11.938 11. 118 8.555 13.578 12.561 11.652 10.030 10.106 9.447 7.024 14.242 12.106 12. 106 10.477 9.763 7.549 14.592 13.754 12.659 10,828 10.059 9.372 H. 20 17.226 13.134 12 085 20 10.04G 14077 13.590 12.462 11.470 10.594 9.010 0.514 7.903 22.023 19.524 17.413 14094 12.7HA 11-454 10.675 9.H23 4.077 25.806 22.396 10.600 17.202 15 372 13.765 12 403 11.258 10.274 9.427 8.694 32.035 27.355 19.793 15.046 13.932 11.925 10.767 39.196 31.424 25.730 19 801 12.233 10.362 3.042 Perlod 11.470 DH40 1.74 1.658 1.585 1.565 1 547 1.289 2.361 2.322 2.283 2.246 2.210 1.952 2.362 2.10G 3,517 3,058 1.73 3.685 3.589 3.410 3.326 1.824 4.423 4.1GO 3.922 3.012 3.70G 3.606 2.508 2 263 4.4GH 4.794 4.078 3.454 3.47 4.329 2.425 2321 5.132 4.772 4.60 4.031 9.463 3.019 2 665 6.650 5.019 1.833 4.339 2.716 5.234 1.836 4.416 4.327 3.656 3.147 2.752 2.4:28 5.91H 1,SHH 4.793 4.611 3.725 2.456 5.585 5.118 4.910 1.715 3.780 6,302 5,468 5.57 4.675 3.859 G.974 G.265 5.954 5.405 5.162 4.930 4.730 3.807 2.034 2.409 6.724 6.973 5.74: 5.475 5.222 4.4HH 4.775 3.910 3.245 2.442 7 250 6.128 5.818 5.273 5.033 2.494 5.077 1.999 7.469 7025 6.259 5.429 5.6524 5.101 4.870 3.954 2.497 1.949 7.843 7.330 6.464 5.195 2.000 30. 8.056 7.496 6.568 5.517 5.235 4.979 3.895 3.132 2.000 0 244 7.106 G.2:1 G.260 2.500 2.000 H. 3IM 7.133 6.46I 6.246 5.554 5.262 1.484 2.500
