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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 6.75 0% 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 $ 4,801,477 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? Yes O NoAPPENDIX D Present Value of an Annuity of $1, PV PV = A (1 + i)" = Al- (1 +i)-" Percent Period 1% 2% 3% 1% 5% 6% 7% 8% 9% 10% 11% 1 . .. 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 5. . 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 8. 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 9 . 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 10 . 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 12. . 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 13.. 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 14 . . 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 15 . . 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 16 .. 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 17.. 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 19. . 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 20. . 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 25 . . 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 30. 25.808 22.396 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 8.694 40. . 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042
