Rework Problem 14A-2, Bond Refunding Part a, using a spreadsheet

Question
Rework Problem 14A-2, Bond Refunding Part a, using a spreadsheet model, and answer the following question: At what interest rate on the new debt is the NPV of the refunding no longer positive? South Tel Technologies is considering whether or not to refund a $90 million, 8% annual coupon, 30-year bond issue that was sold 5 years ago. South Tel’s investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 6.5% (annual payments) in today’s market. Neither they nor South Tel’s management anticipate that interest rates will fall below 6.5% any time soon, but there is a chance that rates will increase. A call premium of 7% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. South Tel’s tax rate is 30%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short term government securities returning 2% annually during the interim period. Should South Tel refund its outstanding bond?

Question

Rework Problem 14A-2, Bond Refunding Part a, using a spreadsheet model, and answer the following question: At what interest rate on the new debt is the NPV of the refunding no longer positive? South Tel Technologies is considering whether or not to refund a $90 million, 8% annual coupon, 30-year bond issue that was sold 5 years ago. South Tel’s investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 6.5% (annual payments) in today’s market. Neither they nor South Tel’s management anticipate that interest rates will fall below 6.5% any time soon, but there is a chance that rates will increase. A call premium of 7% would be required to retire the old bonds, and flotation costs on the new issue would amount to $6 million. South Tel’s tax rate is 30%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short term government securities returning 2% annually during the interim period. Should South Tel refund its outstanding bond?

Continue to order Get a quote

Calculate the price of your order

Type of paper needed:

Pages:

550 words

Academic level:

We'll send you the first draft for approval by September 11, 2018 at 10:52 AM

Total price:

$26

The price is based on these factors:

Academic level

Number of pages

Urgency

Basic features

Free title page and bibliography
Unlimited revisions
Plagiarism-free guarantee
Money-back guarantee
24/7 support

On-demand options

Writer’s samples
Part-by-part delivery
Overnight delivery
Copies of used sources
Expert Proofreading

Paper format

275 words per page
12 pt Arial/Times New Roman
Double line spacing
Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.