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Home / Questions / The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (a

The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (a

The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these bonds were issued five (5) years ago. The Rebellion would now like to refund these bonds that were issued five years ago. These bonds have been amortizing $1.5 million of flotation costs over their 30-year life. The Rebellion could sell a new issue of 25-year bonds at an annual interest rate of 10.00% in today's market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $1.5 million. The Rebellion’s marginal tax rate is 30%. The new bonds would be issued when the old bonds are called. What is The Rebellion’s necessary after-tax refunding investment expenditure, (i.e., the cash amount at the time of the refunding)?

The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these bonds were issued five (5) years ago. The Rebellion would now like to refund these bonds that were issued five years ago. These bonds have been amortizing $1.5 million of flotation costs over their 30-year life. The Rebellion could sell a new issue of 25-year bonds at an annual interest rate of 10.00% in today's market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $1.5 million. The Rebellion’s marginal tax rate is 30%. The new bonds would be issued when the old bonds are called.

The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these bonds were issued five (5) years ago. The Rebellion would now like to refund these bonds that were issued five years ago. These bonds have been amortizing $1.5 million of flotation costs over their 30-year life. The Rebellion could sell a new issue of 25-year bonds at an annual interest rate of 10.00% in today's market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $1.5 million. The Rebellion’s marginal tax rate is 30%. The new bonds would be issued when the old bonds are called.

The Rebellion’s amortization of the flotation costs reduces The Rebellion’s taxes, which provides an annual cash flow. What will The Rebellion’s net increase or decrease in the annual flotation cost tax savings be if The Rebellion refunds the bonds?

The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these bonds were issued five (5) years ago. The Rebellion would now like to refund these bonds that were issued five years ago. These bonds have been amortizing $1.5 million of flotation costs over their 30-year life. The Rebellion could sell a new issue of 25-year bonds at an annual interest rate of 10.00% in today's market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $1.5 million. The Rebellion’s marginal tax rate is 30%. The new bonds would be issued when the old bonds are called.

If the Rebellion were to refund the bonds today, what would the NPV be?

Jan 31 2020 View more View Less

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