Cutech issued a $150 million of a 20-year, 10.5% debt 5 years ago. Since then, Cutech's financial condition has improved and management believes that it could refund the old issue with a new 15-year, 7.5% issue. The old debt is now callable at 104% of par, and issuance costs on the new issue would be 0.6%. The unamortized issuance costs on the old issue are $675,000. If Cutech calls the old issue and refunds it, both issues would be outstanding for a two-week period. If the company's marginal tax rate is 40%, should Cutech refund the old issue? Why or why not?

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The Answer of Cutech issued a $150 million of a 20-year, 10.5% debt 5 years ago. Since then, Cutech's financial condition has improved and management believes that it could refund the old issue with a new 15-year, 7.5% issue. The old debt is now callable at 104% of par, and issuance costs on the new issue would be 0.6%. The unamortized issuance costs on the old issue are $675,000. If Cutech calls the old issue and refunds it, both issues would be outstanding for a two-week period. If the company's marginal tax rate is 40%, should Cutech refund the old issue? Why or why not?

Cutech Issued a $150 Million of a 20-Year, 10