A firm has a bond outstanding Rs. 3,00,00,000. The bond has 12 years remaining until maturity, has a 12.5% coupon and is callable at Rs1,050 per bond; it had flotation cost of Rs.4,20,000 which are being amortized at Rs. 30,000 annually. The flotation costs for a new issue will be Rs. 9,00,000 and the current interest rate will be 10 per cent. The after tax cost of the debt is 6%. should the firm refund the outstanding debt? Show detailed workings. Consider corporate income-tax rate at 50%.
A firm has a bond outstanding Rs. 3,00,00,000. The bond has 12 years remaining until maturity, has a 12.5% coupon and is callable at Rs1,050 per bond; it had flotation cost of Rs.4,20,000 which are being amortized at Rs. 30,000 annually. The flotation costs for a new issue will be Rs. 9,00,000 and the current interest rate will be 10 per cent. The after tax cost of the debt is 6%. should the firm refund the outstanding debt? Show detailed workings. Consider corporate income-tax rate at 50%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A firm has a bond outstanding Rs. 3,00,00,000. The bond has 12 years remaining
until maturity, has a 12.5% coupon and is callable at Rs1,050 per bond; it had
flotation cost of Rs.4,20,000 which are being amortized at Rs. 30,000 annually. The
flotation costs for a new issue will be Rs. 9,00,000 and the current interest rate will
be 10 per cent. The after tax cost of the debt is 6%._should the firm refund the
outstanding debt? Show detailed workings. Consider corporate income-tax rate at
50%.
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