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The Harding Corporation has $ 5 1 . 8 million of bonds outstanding that were issued at a coupon rate of 1 2 . 2
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 D
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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