In the year 2013, Cirrus Aircraft Limited, a private jet manufacturer decided to open a new production site In New Orland, which is connected to a testing and flying facility. The estimated cost to open the new facility was $126 million, out of which $30 million was generated by issuing 30,000, $1000 value bonds with a maturity period of 15 years. Those bonds were offering a coupon rate of 8%. The bonds were offered in NYSE on 1st January 2014 and were sold within early hours of that day. Currently, Financial markets of New York are paying an average return of 7.5% on stocks, 5% on preferred equity and 10% on debt, moreover, Current Yield to Maturity of the bond is 7.25%. Cirrus Aircraft sold 2400* Vision Jet SF50 G2 in 2020, which was above expectation and significantly increase the cash position of the company. Due to which, it was decided in the second board meeting of 2020 to retire as much debt as possible to reduce the interest payment burden on the company. But since, the bonds were not callable, it was decided to offer the bond holders to return the bonds to the company for a face value of $1050 instead of $1000. i. Critically analyze weather this strategy will work or not. (Your answer should start with Yes/No followed by a SINGLE LINE explanation. Do Not write more than one sentence)
In the year 2013, Cirrus Aircraft Limited, a private jet manufacturer decided to open a new production site In New Orland, which is connected to a testing and flying facility. The estimated cost to open the new facility was $126 million, out of which $30 million was generated by issuing 30,000, $1000
in NYSE on 1st January 2014 and were sold within early hours of that day. Currently, Financial markets of New York are paying an average return of 7.5% on stocks, 5% on preferred equity and 10% on debt, moreover, Current Yield to Maturity of the bond is 7.25%. Cirrus Aircraft sold 2400* Vision Jet SF50 G2 in 2020, which was above expectation and significantly increase the cash position of the company. Due to which, it was decided in the second board meeting of 2020 to retire as much debt as possible to reduce the interest payment burden on the company. But since, the bonds were not callable, it was decided to offer the bond holders to return the bonds to the company for a face value of $1050 instead of $1000.
i. Critically analyze weather this strategy will work or not. (Your answer should start with Yes/No followed by a SINGLE LINE explanation. Do Not write more than one sentence)
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