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 $ d. Should the old issue be refunded with new debt? O Yes

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 $ d. Should the old issue be refunded with new debt? O Yes

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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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…
Five years ago, the State of Oklahoma issued $2,000,000 of 7% coupon, 20-year semiannual payment, tax-exempt bonds. The bonds had 5 years of call protection, but now the state can call the bonds if it chooses to do so. The call premium would be 6% of the face amount. Today 15-year, 5%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2%. What is the net present value of the refunding? Because these are tax-exempt bonds, taxes are not relevant. $278,606 $258,606 $238,606 $208,606 $198,606
The following information applies to the questions displayed below.] Serotta Corporation is planning to issue bonds with a face value of $300,000 and a coupon rate of 12 percent. The bonds mature in two years and pay interest quarterly every March 31, June 30, September 30, and December 31. All of the bonds were sold on January 1 of this year. Serotta uses the effective-interest amortization method and does not use a premium account. Assume an annual market rate of interest of 8 percent. (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use appropriate factor(s) from the tables provided.
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Yosemite Corporation has an outstanding debt of $10.09 million on which it pays a 5 percent fixed interest rate annually. Yosemite just made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 4.8 percent, and receive a 4.3 percent fixed rate on $10.09 million notional principal. Suppose that LIBOR turns out to be 4.2 percent in one year and 3.9 percent in two years. Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for the next three years? Note: Negative values should be indicated by parentheses. Year 1 Year 2 Year 3. Answer is not complete. Net. Interest Payments $ (121,080)
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