In 2012, Whit by Enterprises issued $5 million in bonds. At issue, the bonds carried a yield

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In 2012, Whit by Enterprises issued $5 million in bonds. At issue, the bonds carried a yield of 80 basis points above comparable Government of Canada bonds yielding 7.35 percent. When Whit by originally issued the debt, the company agreed to compensate investors on a yield of Canada plus 80 basis points if the bonds were ever called. By 2015, rates on comparable Canadas fell to 5.5 percent and Whit by could issue new debt at 6.4 percent. Given this information, calculate the annual interest penalty Whit by would have to pay to call the debt. Is calling the debt in the best interests of Whit by?

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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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