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Please show calculations. Use excel if needed. IRR is the deliverable...

One year ago Green Inc., issued $100 million of 11-year bonds with a 9.5% coupon payable annually. The first coupon payment has just been paid. The bonds are callable at 105 beginning today. Floatation costs on that issue were $1 million. Green Inc. has a 38% marginal tax rate. Since interest rates have fallen, Green Inc. is considering calling in the bonds and refinancing at current rates. It has two, ten-year, financing alternatives. 1) A $100 million public issue of 8% annual coupon bonds. Flotation costs would be $1 million. 2) An 8%, $100 million private placement with semi-annual coupons. There would be a front-end placement fee of $500,000.

Note: Call premiums and interest payments are tax deductible. However, front-end fees and floatation costs must be capitalized and amortized over the life of the bond.

A)

Calculate the effective cost of raising funds from the public bond issue. Use the IRR procedure for all your calculations. Calculate to at least four decimal places of accuracy.

B)

Calculate the effective cost of raising funds from the private placement of debt. Calculate to at least four decimal places of accuracy.

C)

If Green Inc. does call in the bonds, which of the two refinancing alternatives is preferable.

D)

What is the effective, after-tax cost of leaving the existing bonds in place? In other words, what would be the after-tax all-in cost of refinancing that would make Green Inc. indifferent between calling the bonds and leaving them in place? Calculate to at least four decimal places of accuracy.

E)

Should Green Inc. call in the bonds?

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