The Sunbelt Corporation has $38 million of bonds outstanding that were issued at a coupon rate of 11.575 percent seven years ago. Interest rates have fallen to 10.90 percent. Mr. Heath, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Mr. Heath would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Sunbelt Corporation has a tax rate of 36 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 1.3 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 7 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 for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent).

a. Compute the discount rate

b. Calculate the present value of total outflows.

c. Calculate the present value of total inflows.

d. Calculate the netpresent value.

Appendix D Present value of an annuity of $1, PY PV= A Percent Parlod 2% 4% 59% 9% 10% 11% 12% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 E68 0 1.970 1.042 1.913 1.886 1.869 1.833 1.808 1.783 1.769 1.736 1.713 1.690 2041 2.884 2.820 2.775 2.723 2673 2.624 2.577 2.531 2.487 2414 2.402 ZONE 3.808 3.717 3.630 3.546 3.465 3.287 3.312 3.240 3.170 3.102 3.037 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 5,795 5,601 5417 5242 5.076 4917 4767 4.623 4 486 4.355 1 231 4.111 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4564 7.652 7.325 7.020 6.737 6.463 6.210 5.971 5.747 5.335 5.146 4.968 8.GGG 8.162 7.786 7 435 7.108 6.802 6.615 6.247 6.995 6.769 5.537 6.328 10 9471 8.983 8.530 8.111 7.722 7.360 7.024 6,710 6,418 6.145 5 889 5 650 11 10.368 9.787 9.253 8.760 8.306 7 887 7.499 6.805 6.495 6.207 5938 12 11.295 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 13 12.134 11 348 10.635 9 986 9.394 8 853 8 358 7904 7487 7.103 6 750 6 424 14 13.004 12.106 11.296 10563 9.899 9.295 #745 8 244 7.786 7.367 6982 6 628 15 13.865 12 849 11.118 OBE OI 9.712 9.108 8.559 8.061 7.606 7.191 6811 16 14.718 13578 12.661 1 1.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6974 17 15.562 14 292 13.166 12.166 11 274 10 477 9.763 9.122 8544 8.022 7.519 7.120 18 16.398 14992 13.754 12.659 11.690 10 828 10.059 9.372 8.756 B.201 7.702 7.250 19 17.226 15678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 20 18:046 16 351 14.877 13.590 12.462 11.470 10 504 9.818 9.129 8514 7.963 7 469 25 22.023 19523 17.413 15.622 14.094 12783 11.654 10.675 9.823 9.077 8.422 7.843 30 25.BOB 22 395 19.600 17.292 15.372 13.765 12.409 11.258 10.274 9.427 B.694 8 055 40 32.836 27.365 23.116 19.793 17.159 15 046 13.332 11.925 10.767 9.779 8.961 8.244 50 39.196 31.424 25,730 21482 18 256 15 762 13.801 12.233 10.962 0.915 9012 8304