Question

 PW of floation costs on new issue =5000000*4% = \$ -2,00,000 PW of Call premium on old bonds = 5000000*6.5% = \$ -3,25,000 Interest saved per annum = 5000000*(10.5-8.5)% = 100000 PW of interest saved for 13 years at 8.5% = 100000*(1.085^13-1)/(0.085*1.085^13) = \$   7,69,095 NPV of refunding \$   2,44,095 As the NPV of refunding is positive, the new bonds can be issued and the old bonds can be called.

#### Earn Coins

Coins can be redeemed for fabulous gifts.

Similar Homework Help Questions
• ### 10 years ago, the City of Newbury Park issued \$3,000,000 of 7% coupon, 14-year, annual payment,...

10 years ago, the City of Newbury Park issued \$3,000,000 of 7% coupon, 14-year, annual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 4% of the face amount. New 4-year, 4.5%, annual payment bonds can be sold at par, but flotation costs on this issue would be 3% of the amount of bonds sold. What is the...

• ### OTOnits 10, 10 years ago, the City ofMelrose issued \$4,000,000 of9% coupon, 15-year, annual payment, tax-exempt...

OTOnits 10, 10 years ago, the City ofMelrose issued \$4,000,000 of9% coupon, 15-year, annual payment, tax-exempt muni bonds. The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 5% of the face amount. New 5-year, 7%, annual payment bonds can be sold at par, but flotation costs on this issue would be 3% of the amount of bonds sold. What is the net...

• ### New York Waste (NYW) is considering refunding a \$50,000,000, annual payment, 10% coupon, 30-year bond issue...

New York Waste (NYW) is considering refunding a \$50,000,000, annual payment, 10% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing \$3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 6% in today's market. A call premium of 10% would be required to retire the old bonds, and flotation costs on the new issue would amount...

• ### SCENARIO: (this information will pertain to questions 18-21) The Rebellion issued \$50,000,000 face value of 30-year...

SCENARIO: (this information will pertain to questions 18-21) The Rebellion issued \$50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these bonds were issued five (5) years ago. The Rebellion would now like to refund these bonds that were issued five years ago. These bonds have been amortizing \$1.5 million of flotation costs over their 30-year life. The Rebellion could sell a new issue of 25-year bonds at an annual interest rate of 10.00% in today's market....

• ### 10 years ago the Singleton Company issued 30-year bonds with a 12.5% annual coupon rate at their \$1,000 par value....

10 years ago the Singleton Company issued 30-year bonds with a 12.5% annual coupon rate at their \$1,000 par value. The bonds had a 7.5% call premium, with 3 years of call protection. Today Singleton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. 7.50% 12.91% 13.83% 12.50%

• ### Seven years ago the Templeton Company issued 30-year bonds with an 11% annual coupon rate at...

Seven years ago the Templeton Company issued 30-year bonds with an 11% annual coupon rate at their \$1,000 par value. The bonds had an 5% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. %

• ### Six years ago the Templeton Company issued 28-year bonds with an 13% annual coupon rate at...

Six years ago the Templeton Company issued 28-year bonds with an 13% annual coupon rate at their \$1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places.

• ### Six years ago the Singleton Company issued 20-year bonds with a 14% YIELD TO CALL annual...

Six years ago the Singleton Company issued 20-year bonds with a 14% YIELD TO CALL annual coupon rate at their \$1,000 par value. The bonds had a 9% call premium, 5 years of call protection. Today Singleton called the bonds. Compute the realized rate of 7-8 with return for an investor who purc they were called. Explain why the investor should or should not be happy that Singleton the bonds when they were issued and held them until called them

• ### Seven years ago the Templeton Company issued 18-year bonds with an 11% annual coupon rate at...

Seven years ago the Templeton Company issued 18-year bonds with an 11% annual coupon rate at their \$1,000 par value. The bonds had a 6% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Seven years ago the Templeton Company issued 18-year bonds with an 11% annual coupon rate at their \$1,000...

• ### Six years ago the Templeton Company issued 20-year bonds with a 13% annual coupon rate at...

Six years ago the Templeton Company issued 20-year bonds with a 13% annual coupon rate at their \$1,000 par value. The bonds had an 8% call premium, with 5 years of call protection. Today Templeton called the bonds. Compute the realized rate of return for an investor who purchased the bonds when they were issued and held them until they were called. Round your answer to two decimal places. % Why should or should not the investor be happy that...