Please do your answers on an Excel spreadsheet, using one tab per question. The alternative is to use pen and paper and submit these as a PDF (but this is not ideal.)

b. The total principal value of Clatterbridge Ltd bonds is $165 million, and the bonds have an annual coupon rate of 6 percent. The total cost of refunding would be 8 percent of the principal amount raised. The appropriate tax rate for the company is 30 percent. Assume the bonds were issued at par value and that coupons are paid annually.

Required:

How low does the market interest rate need to drop to justify refunding with a new bond issue?

( 8 marks)