Old MathJax webview

Old MathJax webview

Return to question The Sunbelt Corporation has $40 million of bonds outstanding that were issued at a coupon rate of 11.775 percent seven years ago Interest rates have fallen to 11.20 percent. Mr. Heath, the Vice-President of Finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Mr. Heath would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Sunbelt Corporation has a tax rate of 36 percent. The underwriting cost on the old issue was 2.7 percent of the total bond value. The underwriting cost on the new issue will be 1.4 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 8 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter (consider the bond to be seven years old for purposes of computing the premium). Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole percent (e.g. 4.06 percent should be rounded up to 5 percent) a. Compute the discount rate. (Do not round intermediate calculations. Input your answer as a percent rounded up to the nearest whole percent.) Answer is complete and correct. Discount rate 8 % b. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. PV of total outflows S 2,316,139.00 c. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. PV of total inflows S 1,604,183.00 d. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. Net present value S 711,956.00 X e. Should the Sunbelt Corporation refund the old issue? Yes O No d. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. Net present S 711,956.00 value e. Should the Sunbelt Corporation refund the old issue? Yes No Appendix D Present value of an annuity of $1, PVIFA 1 PVA = A 1- (1 + i)" Percent Period 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 1 0.980 0.971 0.962 0.943 0.935 0.926 0.917 0.909 0.893 2 1.942 1.913 0.990 1.970 2.941 3.902 1.833 1.808 1.783 1.759 3 2.577 2.884 3.808 4.713 2.829 3.717 2.673 3.465 2.624 3.387 4 1.690 2.402 3.037 0.952 1.859 2.723 3.546 4.329 5.076 5.786 6.463 0.901 1.713 2.444 3.102 3.696 1.736 2.487 3.170 3.791 4.355 1.886 2.775 3.630 4.452 5.242 6.002 6.733 5 4.853 3.312 3.993 4.580 4.100 3.605 6 5.795 6.728 5.601 6.472 4.212 4.917 5.582 6.210 5.417 6.230 7.020 7 4.767 5.389 5.971 4.623 5.206 5.747 4.231 4.712 5.146 4.111 4.564 8 9 7.325 8.162 8.983 7.786 6.515 7.108 7.722 10 5.537 5.889 7.435 8.111 8.760 9.385 4.868 5.335 5.759 6.145 6.495 6.814 8.530 4.968 5.328 5.650 5.938 6.247 6.710 7.139 7.536 7.024 7.499 11 9.253 9.787 10.575 6.802 7.360 7.887 8.384 8.853 9.295 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 8.306 8.863 9.394 6.207 6.492 9.954 12 13 14 6.194 7.943 8.358 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 10.635 6.750 11.348 12.106 12.849 9.986 10.563 11.118 11.296 11.938 8.745 9.899 10.380 7.904 8.244 8.559 7.103 7.367 7.606 7.824 6.424 6.628 6.811 15 9.712 9.108 13.578 10.838 8.851 6.974 16 17 18 12.561 13.166 11.652 12.166 14.292 11.274 8.022 10.106 10.477 10.828 11.158 9.447 9.763 10.059 10.336 12.659 14.992 15.678 8.201 13.754 14.324 9.122 9.372 9.604 11.690 12.085 7.120 7.250 7.366 19 13.134 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 8.365 20 18.046 14.877 13.590 12.462 11.470 9.818 16.351 19.523 22.396 10.594 11.654 7.469 7.843 17.413 15.622 25 30 12.783 14.094 15.372 10.675 11.258 8.514 9.077 9.427 17.292 13.765 12.409 9.129 9.823 10.274 10.757 10.962 22.023 25.808 32.835 39.196 8.055 19.600 23.115 25.730 19.793 17.159 13.332 11.925 40 50 8.244 27.355 31.424 15.046 15.762 9.779 9.915 21.482 18.256 13.801 12.233 8.304