ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is closest to

ABC Corporation was able to issue 20-year P10,000,000-face value bonds with interest of 8% per annum, due every quarter. It incurred issuance cost of P350,000 but it got net proceeds of P10,200,000 from the issuance. The annual effective cost of these bonds is closest to

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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Palmer Company has $5,000,000 of 15-year maturity bonds outstanding. Each bond has a maturity value of $1,000, an annual coupon of 12.0%. The bonds can be called at any time with a premium of $50 per bond. If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations-assume that the firm's tax rate is zero. The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profitable to call in the bonds? A) 9.57% B) 10.07% C) 10.60% D) 11.16% E) 11.72%
Shanken NV issued a 20-year, 12 percent semiannual bond 5 years ago. The bond currently sells for 129 percent of its face value. The company’s tax rate is 35 percent. Assume the face value of the debt is €1,000. What is the after-tax cost of debt? a) 3.844% b) 5.057% c) 8.54% d) 5.55%
The Wagner Corporation has a $21 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 16 percent, the interest rates on similar issues have declined to 13.3 percent. The bonds were originally issued for 20 years and have 16 years remaining. The new issue would be for 16 years. There is a 10 percent call premium on the old issue. The underwriting cost on the new $21 million issue is $670,000, and the underwriting cost on the old issue was $520,000. The company is in a 40 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 5 percent. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answers to nearest whole dollar.) a. Calculate the present value of total outflows. Total outflows $ b. Calculate the present value of total inflows. Total inflows $ c. Calculate the net present value. Net present value $…
Wildhorse Company is issuing long-term bonds to raise money for a planned acquisition. The face value of the bonds is $9551000. The stated interest rate is 10% payable seminannally for the 10 year term. The current market rate for similar bonds is 8%. What amount of proceeds is closet to the amount that Wildhorse will receive from this bond issue?
Lenovo issued 30-year, 7.7 percent semiannual bonds 6 years ago. The bonds sell presently at 101 percent of face value. What is the company's after-tax cost of debt if the tax rate is 35 percent?
The Wagner Corporation has a $29 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 16 percent, the interest rates on similar issues have declined to 13.3 percent. The bonds were originally issued for 25 years and have 21 years remaining. The new issue would be for 21 years. There is a 8 percent call premium on the old issue. The underwriting cost on the new $29 million issue is $640,000, and the underwriting cost on the old issue was $490,000. The company is in a 40 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 5 percent. (Do not round intermediate calculations. Enter the answers in whole dollars, not in millions. Round the final answers to nearest whole dollar.) a Calculate the present value of total outflows. Total outflows $ 3450000 b. Calculate the present value of total inflows. Total inflows $ 469800 c. Calculate the net present value. Net…
The Mossman Castle Hill has a $19 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.6 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 10 percent call premium on the old issue. The underwriting cost on the new $18,000,000 issue is $530,000, and the underwriting cost on the old issue was $380,000. The company is in a 35 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyse the refunding decision. Should the old issue be refunded with new debt? (Follow the steps from the textbook example!) Skip Start Solving

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