Six years ago, Heart U, Inc. issued $33 million of 8 percent, semi-annual, 21-year bonds. The issue can be called at a premium of 8 percent. Flotation costs of 4 percent of the face value are being amortized over the issue’s 21-year life. If the company issued new 15-year bonds today, the coupon rate would be 6.5 percent and the flotation costs would equal 3% of the face value. Heart U’s marginal tax rate is 40 percent. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short-term securities returning 0.5 percent annually.

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Answer PMT 1000 00852 425 N 155 2 31 s... View the full answer