Bond refunding Subordinated debentures of Swan Song Ltd. have been outstanding for 7 years and...
80.2K
Verified Solution
Link Copied!
Question
Finance
Bond refunding Subordinated debentures of Swan Song Ltd. have been outstanding for 7 years and have 8 years to maturity at their face value of $90 million. The annual interest rate on the bonds is 7.0 percent but current yields in the marketplace suggest new subordinated debentures could be issued to yield 5.50 percent.
A junior analyst in the company is surprised to find each $1,000 bond trading at $1,050 instead of her calculation of $1,096.03 based on PV analysis. It is then that she realizes the bond has a call premium and the bonds are priced efficiently at the call price. Including underwriting fees the borrowing costs of a new issue would be $1.6 million.
Currently T-bills yield 2.4 percent and a 30 day overlap period is expected. Swan Song has a tax rate of 28%.
The junior analyst therefore prepares an analysis to see if refunding the issue is justified. Is it?
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
- Unlimited Question Access with detailed Answers
- Zin AI - 3 Million Words
- 10 Dall-E 3 Images
- 20 Plot Generations
- Conversation with Dialogue Memory
- No Ads, Ever!
- Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Other questions asked by students
StudyZin's Question Purchase
1 Answer
$0.99
(Save $1 )
One time Pay
- No Ads
- Answer to 1 Question
- Get free Zin AI - 50 Thousand Words per Month
Unlimited
$4.99*
(Save $5 )
Billed Monthly
- No Ads
- Answers to Unlimited Questions
- Get free Zin AI - 3 Million Words per Month
*First month only
Free
$0
- Get this answer for free!
- Sign up now to unlock the answer instantly
You can see the logs in the Dashboard.