The Rebellion issued $50,000,000 face value of 30-year bonds carrying a 12% (annual payment) coupon; these...

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The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called. What is The Rebellion’s necessary after-taxrefunding investment expenditure, (i.e., the cash amount at thetime of the refunding)?
The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.
The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.
The Rebellion’s amortization of the flotation costsreduces The Rebellion’s taxes, which provides an annual cash flow.What will The Rebellion’s net increase or decrease in the annualflotation cost tax savings be if The Rebellion refunds thebonds?
The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.
If the Rebellion were to refund the bonds today, whatwould the NPV be?

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3.6 Ratings (416 Votes)

NPV of Bond RefundingDecisionStep 1 Calculationof Initial Investment Y or After Tax Refunding investmentexpenditurePARTICULARSAMOUNT Refund of Old Bonds 500000001260000000Less Net Proceeds From New Bond Issue See Answer

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The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called. What is The Rebellion’s necessary after-taxrefunding investment expenditure, (i.e., the cash amount at thetime of the refunding)?The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.The Rebellion’s amortization of the flotation costsreduces The Rebellion’s taxes, which provides an annual cash flow.What will The Rebellion’s net increase or decrease in the annualflotation cost tax savings be if The Rebellion refunds thebonds?The Rebellion issued $50,000,000 face value of 30-year bondscarrying a 12% (annual payment) coupon; these bonds were issuedfive (5) years ago. The Rebellion would now like to refund thesebonds that were issued five years ago. These bonds have beenamortizing $1.5 million of flotation costs over their 30-year life.The Rebellion could sell a new issue of 25-year bonds at an annualinterest rate of 10.00% in today's market. A call premium of 12%would be required to retire the old bonds, and flotation costs onthe new issue would amount to $1.5 million. The Rebellion’smarginal tax rate is 30%. The new bonds would be issued when theold bonds are called.If the Rebellion were to refund the bonds today, whatwould the NPV be?