Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

The Robinson Corporation has $50 million of bonds outstanding which were issued at a coupon rate of 11 3/4 percent seven years ago. Interest rates have fallen to 10 3/4 percent. Mr. Brooks, the vice-president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Brooks would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Robinson Corporation has a tax rate of 35 percent. The underwriting cost on the old issue was 2.5 percent of the total bond value. The underwriting cost on the new issue will be 1.8 percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9.5 percent call premium starting in the sixth year and scheduled to decline b one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded to the nearest whole number. Should the Robinson Corporation refund the old issue?

problem:

Study problem 18 starting on page 520. Given a 7% discount rate, find out the cost savings from lower interest rates Robinson would realize if Robinson refinanced its long term debt. Show work and describe.(Note: just find out the cost savings from lower interest rates only, don't solve the whole problem.)

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M944784

Have any Question? 


Related Questions in Basic Finance

Examine the following case Examine the following case study:

Examine the following case study: http://www.finance.nsw.gov.au/ict/resources/nsw-government-digital-information-security-policy 1. Use a diagram (produced by the means of using Rationale, Visio or any other relevant sof ...

Vbn is a microcap stock included in the wilshire 5000 index

VBN is a microcap stock included in the Wilshire 5000 index. The following lists the actual returns on VBN and the Wilshire 5000 index for 6 recent years. Year  VBN  Wilshire 20X1  -18.0% 13.0%  20X2 -10.0% -8.0% 20X3   ...

Consider a portfolio comprised of two securities m and n

Consider a portfolio comprised of two securities, M and N. The correlation of the returns on these securities is 0.25. And suppose that these securities have different standard deviations. Explain how different combinati ...

What distinguishes indebtedness and equity is preferred

What distinguishes indebtedness and equity? Is preferred stock a debt or equity instrument? Explain ? How does a mutual fund perform its function as a financial intermediary? What is meant by the term "maturity intermedi ...

1 oil and gas companies must disclose quantity estimates

1. Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant. 2. For ...

1 what types of risks should shareholder wealth-maximizing

1. What types of risks should shareholder wealth-maximizing managers seek to offset in a firm they are managing? Why? 2. How can the acquisition of additional information be an effective tool of risk management? Give an ...

Angelo purchased a 7 annual coupon bond one year ago for

Angelo purchased a 7% annual coupon bond one year ago for $987. At the time of purchase, the bond had six years to maturity. Over the past year inflation has been 3.2%. The market required return on this bond today is 8% ...

6 cs of credit as defined by the author look at each one

6 C's of credit, as defined by the author. Look at each one and evaluate its merit. Pick two of the six and explain why you think it is vital that an underwriter would use this and how. Finally, pick which of the six you ...

Why do you suppose that foreign governments provide mncs

Why do you suppose that foreign governments provide MNCs with incentives to undertake FDI in their countries? Explain the theory of comparative advantage as a motive for foreign trade.

1 do powerful studies minimize alpha or beta explain2 what

1. Do powerful studies minimize alpha or beta? Explain. 2. What information do researchers obtain from conducting a power analysis? 3. What would it mean if the effect size in an experiment was .25? .40? .OO?

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen