Question
Rest Haven has $150.0 million in ten-year bonds, bearing a coupon rate of 12.5% outstanding. The current market rate for these bonds is 6.8%. The
Rest Haven has $150.0 million in ten-year bonds, bearing a coupon rate of 12.5% outstanding. The current market rate for these bonds is 6.8%. The corporate treasurer has been given a directive by the Board of Directors to ascertain the savings of refinancing this issue of bonds. Jim, a crack financial analyst who works for the treasurer, has provided a list of information, which is provided below. Decide which of these items is relevant to the refunding decision. Hint: Treat like a capital budgeting decision.
A. | Present value of inflows from refunding. | |
B. | Present value of outflows from refunding. | |
C. | Rest Haven's weighted average cost of capital. | |
D. | Present value of outflows from refunding and Rest Haven's weighted average cost of capital. | |
E. | All answers are correct. | |
F. | The net difference of the inflows when compared to the outflows. |
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