An outstanding issue of Executive Airlines debentures has a call provision attached. The total principal value of

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An outstanding issue of Executive Airlines debentures has a call provision attached. The total principal value of the bonds is $170 million, and the bonds have an annual coupon rate of 8 percent. The total cost of refunding would be 12 percent of the principal amount raised. The appropriate tax rate for the company is 39 percent. How low does the borrowing cost need to drop to justify refunding with a new bond issue?
Debentures
Debenture DefinitionDebentures are corporate loan instruments secured against the promise by the issuer to pay interest and principal. The holder of the debenture is promised to be paid a periodic interest and principal at the term. Companies who...
Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
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Corporate Finance

ISBN: 978-0071339575

7th Canadian Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Gordon Ro

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