The ABC Company currently has $50 million of 13 percent coupon bonds that pay interest semi-annually. These bonds are due in 8 years and can be called at a premium of 5 percent.

At present, the company can float a new issue of similar bonds with a coupon rate of 10percent. The company will have to incur issuing and underwriting expenses of $600,000.

ABC has a 40% tax rate. Should refinancing take place?

Answer rating: 100% (QA)

Solution Cost of refinancing Premium Call fter tax ... View the full answer