Start with the partial model in the file Ch18 P08 Build a Model.xls on the textbook's Web

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Start with the partial model in the file Ch18 P08 Build a Model.xls on the textbook's Web site. Schumann Shoe Manufacturer is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold 8 years ago. It is amortizing $4.5 million of flotation costs on the 10% bonds over the issue's 30-year life. Schumann's investment bankers have indicated that the company could sell a new 22-year issue at an interest rate of 8% in today's market. Neither they nor Schumann's management anticipate that interest rates will fall below 6% anytime soon, but there is a chance that interest rates will increase.

a. Conduct a complete bond refunding analysis. What is the bond refunding's NPV?

b. At what interest rate on the new debt is the NPV of the refunding no longer positive?

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Intermediate Financial Management

ISBN: 978-1285850030

12th edition

Authors: Eugene F. Brigham, Phillip R. Daves

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