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Mullet Technologies is considering whether or not to refund a $75 million, 13% coupon, 30-year bon million of flotation costs on the 13% bonds over the issue's 30-year life. Mullet's investment banks ha issue at an interest rate of 9% in today's market. Neither they nor Mullet's management anticipate th there is a chance that rates will increase. A call premium of 11% would be required to retire the old bonds, and flotation costs on the new issu plus-state tax rate is 30%. The new bonds would be issued 1 month before the old bonds are called, government securities returning 5% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? Do not round inter dollar. $?

Mullet Technologies is considering whether or not to refund a $75 million, 13% coupon, 30-year bon million of flotation costs on the 13% bonds over the issue's 30-year life. Mullet's investment banks ha issue at an interest rate of 9% in today's market. Neither they nor Mullet's management anticipate th there is a chance that rates will increase. A call premium of 11% would be required to retire the old bonds, and flotation costs on the new issu plus-state tax rate is 30%. The new bonds would be issued 1 month before the old bonds are called, government securities returning 5% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? Do not round inter dollar. $?

Essentials Of Investments
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
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Mullet Technologies is considering whether or not to refund a $75 million, 13% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $8 million of flotation costs on the 13% 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 9% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 9% any time soon, but there is a chance that rates will increase. A call premium of 11% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. Mullet's marginal federal- plus-state tax rate is 30%. 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 5% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. $?
Transcribed Image Text:Mullet Technologies is considering whether or not to refund a $75 million, 13% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $8 million of flotation costs on the 13% 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 9% in today's market. Neither they nor Mullet's management anticipate that interest rates will fall below 9% any time soon, but there is a chance that rates will increase. A call premium of 11% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. Mullet's marginal federal- plus-state tax rate is 30%. 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 5% annually during the interim period. Conduct a complete bond refunding analysis. What is the bond refunding's NPV? Do not round intermediate calculations. Round your answer to the nearest dollar. $?
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