Question: An outstanding issue of Executive Airlines debentures has a call
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?
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