The Wagner Corporation has a $30 million bond obligation outstanding, which it is considering refunding. Though...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
The Wagner Corporation has a $30 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 11 percent, the interest rates on similar issues have declined to 8.6 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 8 percent call premium on the old issue. The underwriting cost on the new $30 million issue is $650,.000, and the underwriting cost on the old isue was $500,000. The company is in a 30 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 3 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 O No The Wagner Corporation has a $30 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 11 percent, the interest rates on similar issues have declined to 8.6 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 8 percent call premium on the old issue. The underwriting cost on the new $30 million issue is $650,.000, and the underwriting cost on the old isue was $500,000. The company is in a 30 percent tax bracket, and it will allow an overlap period of one month (1/12 of the year). Treasury bills currently yield 3 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 O No
Expert Answer:
Answer rating: 100% (QA)
Stepbystep explanation Outflows Payment of call premium 24 million 8 19200... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these general management questions
-
Two 182-day, $1000000 T-bills were initially issued at a price that would yield the buyer 2.5%. If the yield required by the market remains at 2.5%, how many days before their maturity date will the...
-
Terrier Company is in a 40 percent tax bracket and has a bond outstanding that yields 10 percent to maturity. a. What is Terriers aftertax cost of debt? b. Assume that the yield on the bond goes down...
-
A $1,000 par value bond was issued 25 years ago at a 12 percent coupon rate. It currently has 15 years remaining to maturity. Interest rates on similar obligations are now 8 percent. a. What is the...
-
The IASB's main objective is to develop a set of high-quality standards for financial reporting by companies at the international level. Required: Critically examine the possibility of achieving this...
-
Why are organizations hesitant to report losses related to cybercrime?
-
(a) Calculate the percent ionization of 0.0075 Mbutanoic acid (ka = 1.5 x 10. (b) Calculate the percent ionization of 0.0075 M butanoic acid in a solution containing 0.085 M sodium butanoate.
-
Consider the Gompertz model in Eq. (12.35). Graph the expectation function for \(\theta_{1}=1, \theta_{3}=1\), and \(\theta_{2}=\frac{1}{8}, 1,8,64\) over the range \(0 \leq x \leq 10\). Equation...
-
Selected transactions for Babcock Company during November of the current year are listed in Problem 5-3A. In Problem 5-3A The following were selected from among the transactions completed by Babcock...
-
What role do neuroplasticity and epigenetic modifications play in shaping an individual's susceptibility to stress-related disorders, and how might targeted interventions capitalize on these...
-
Using the adjusted trial provided below, prepare an income statement, statement of owner's equity, and balance sheet for Solomon Services Company. Note: Solomon Services Company had a capital balance...
-
Consider the following program: int x=9; If (x <18) z=8+x; else Z= X+X; Write the assembly language code for the above program.
-
For this assignment, you will be preparing your own cover letter and rsum! Even if you may not be planning to apply for a new job anytime soon, use this activity to begin planning for the future. If...
-
-Convertible Preferred Stock -TG pre money: 5M -TG post money: 9M Red Baron: -Convertible Participating -Preferred Stock -RB pre money: 6M -RB post money: 12M -capped at 2.5 Question: HOW TO DRAW THE...
-
The current in the figure below is 0.62 A. (Let the internal resistance of battery 1 be = 1.40 and the internal resistance of battery 2 be r = 1.2 02.) ww 6.0 V Battery 1 (a) Find the voltage drop...
-
For the end of Robbie Ltd's financial year June 30 th 2019, the event below needs to be fixed. No adjusting entries have been prepared yet for the accounting period.If a depreciable asset was...
-
How might a program manager in a police department apply the results of this research study to help police officers? What kind of program or initiative could they propose based on the results....
-
Which of the algorithms are based on divide-and-conquer paradigm? Which of the algorithms run better than O( ????????2) on the avaerage ? Which of the algorithms can be used to construct a minimum...
-
Does log 81 (2401) = log 3 (7)? Verify the claim algebraically.
-
Assume in the previous problem that Cable Corp. common stock was selling for $50 per share when the Manning Investment Company bought the warrants. a. What was the intrinsic (minimum) value of a...
-
Ontario Corporation, a holding company, has investments in three other firms. Values are expressed in millions of dollars. The Ontario Corporation has voting control of the three other corporations...
-
Roget's Search Engine Limited plans to pay dividends of $2.00, $3.50, and then a liquidating dividend of $20.25 over the next three years. If investors expect a 10 percent return on their investment,...
-
In a large office building, there is a woman dead in her locked office, sitting at her desk. Except for the desk, chair, and contents on the desk, the office is empty and the air conditioner is...
-
How many birthdays does the average person have?
-
There are 5 different color houses, occupied by people of 5 different nationalities, who smoke 5 different cigar brands, drink 5 different types of alcohol, and have 5 different pets. The houses are...
Study smarter with the SolutionInn App