Mullet Technologies – Bond Refunding (15th ed) Mullet Technologies is considering whether or not to refund a $75 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation costs on the 12% bonds over the issue's 30-year life. Mullet's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 10% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 10% any time soon, but there is a chance that rates will increase. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal-plus-state tax rate is 40%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? b. What factors would influence Mullet's decision to refund now rather than later? а.

Mullet Technologies – Bond Refunding (15th ed) Mullet Technologies is considering whether or not to refund a $75 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 million of flotation costs on the 12% bonds over the issue's 30-year life. Mullet's investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 10% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 10% any time soon, but there is a chance that rates will increase. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal-plus-state tax rate is 40%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 6% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? b. What factors would influence Mullet's decision to refund now rather than later? а.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

6. The City of Cebu plan to improve the water system distribution of the city. The estimated cost of the improvement is about P 5,000,000. To raise the amount, the city decided to sell bonds to finance the said project. The bond rate is fixed at 5% payable yearly. The interest rate of the money is at 10% compounded yearly. The bond is redeemable 20 years from now at its face value. How much should the selling price of the bond as to attract buyers.
Krysel Inc. is expecting a new project to begin producing cash flows at the end of this year. They expect cash flows to be as follows: Year Year 1 2 3 amount $663,547 $698,214 $795,908 If they can reinvest these cash flows to earn a return of 9.2 percent, what is the future value of this cash flow stream at the end of five years? (Round to the nearest dollar.) Group of answer choices $1,468,692 $1,429,046 $1,668,692 $1,804,382
12. The initial investment for a geothermal power plant is $60,000,000 and is to be paid in two years (year 0 and year 1) equally. The electricity generated by the plant is expected to bring revenue of 10,000,000 per year increasing at a rate of 3% annually. The total annual expenses of the plant will be 1,500,000 increasing at a rate 4% annually. The company that owns the plant plans to borrow 50% of the capital expenditure at a rate 6%. The discount rate for this company is 12% and its taxation rate is 35%. A 10 year depreciation period is allowed for this power plant. The plant is expected to generate electricity for 30 years after which it will have zero value. What is the present value of this investment? Should the company undertake the investment? 13. What would be the answer to the plant of problem 12 if the company were allowed to borrow 80% of the cost of the geothermal power plant at an annual rate of 5%.
Solo Corporation is evaluating a project with the following cash flows: Year 0,1, 2, 3, 4, 5 Cash Flow $ -29,600;  11,800;  14,500 ; 16,400;  13,500 and -10,000. The company uses an interest rate of 10 percent on all of its projects. Calculate the MIRR of the project using all three methods. a. MIRR using the discounting approach. b. MIRR using the reinvestment approach. c. MIRR using the combination approach.
2. 3. Problem 7) Given the cash flow diagram, determine the unknown for an interest rate of 10% 500 400 300 200 100 111111 4 5 6 7 8| 6.
An investment on a machinery can yield following cash flow for 8 years and in the end of the 8th year resale value will be 15,000 dollars. How much can be invested on this machinery at the present time, considering the interest rate of 10% compounded annually. Please explain your work in detail. C-? 1-2000 1-2000 -2000 -2000 -1000 -1000 1-1000 -1000 L-$15,000 2. 4. 7. C: Cost, I: Income, L: Salvage Value
Mini Case: FINANCING EAST COAST YACHTS’S EXPANSION PLANS WITH A BOND ISSUE After Dan’s EFN analysis for East Coast Yachts (see the Mini Case in Chapter 3), Larissa has decidedto expand the company’s operations. She has asked Dan to enlist an underwriter to help sell $40 millionin new 20-year bonds to finance new construction. Dan has entered into discussions with Kim McKenzie,an underwriter from the firm of Crowe & Mallard, about which bond features East Coast Yachts shouldconsider and also what coupon rate the issue will likely have. Although Dan is aware of bond features, heis uncertain as to the costs and benefits of some of them, so he isn’t clear on how each feature wouldaffect the coupon rate of the bond issue. Respond to the following questions: 1. You are Kim’s assistant, and she has asked you to prepare a memo to Dan describing the effect of each of the following bond features on the coupon rate of the bond. She would also like you to list any advantages or disadvantages…