Question: Refunding Decision Problem Apple Co. has a $30 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10

Refunding Decision Problem

Apple Co. has a $30 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 8 percent call premium on the old issue. The underwriting cost on the new $30,000,000 issue is $750,000, and the underwriting cost on the old issue was $550,000. The company is in a 34 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision.

- Should the old issue be refunded with new debt?

- Explain in which cases the refunding decision will be needed.

with details please..

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