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Gemini Ltd has Rs 250 million, 17% bonds outstanding with 8 years remaining to maturity....

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Accounting

Gemini Ltd has Rs 250 million, 17% bonds outstanding with 8 years remaining to maturity. As interest rates have fallen, Gemini Ltd can refund its bonds with Rs 250 million issue of 8 years bonds carrying a coupon rate of 15%. The call premium will be 6%. The issue costs on the new bonds will be Rs 10 million. The un-amortised portion of the issue costs on the old bonds is Rs 8 million and these can be written off no sooner the old bonds are called. Gemini Ltd marginal tax rate is 40%. Analyse the bond refunding decision. (10 marks)

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