Question

You are considering refunding an outstanding bond. What would be the present value (after taxes) of...

You are considering refunding an outstanding bond. What would be the present value (after taxes) of the savings from the lower coupon payments given the following?

Years Left Until Maturity = 7 Years
Current Annual Coupon Interest Rate = 11%
Current $ of Outstanding Bonds = $60,000,000
Annual Coupon Interest Rate if Reissued= 8%
Corporate Tax Rate = 40%
Present Value Discount Rate = 4.8%

a) 4,196,555

b) 6,294,832

c) 6,371,649

d) 10,491,397

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