A firm has $45,000,000 of preferred shares outstanding that have a yield of 10% on par and are callable at a 3% premium.New issues will cost $980,000 in issuing and underwriting expenses.
a)At what interest rate would the firm want to refinance?
b)If the dividend yield drops to 8 percent, how long will it take before the present value of the interest savings exceeds the cost of refinancing?

Question

Quizplus · Accepted Answer

The Answer of A firm has $45,000,000 of preferred shares outstanding that have a yield of 10% on par and are callable at a 3% premium.New issues will cost $980,000 in issuing and underwriting expenses.
a)At what interest rate would the firm want to refinance?
b)If the dividend yield drops to 8 percent, how long will it take before the present value of the interest savings exceeds the cost of refinancing?

A Firm Has $45,000,000 of Preferred Shares Outstanding That Have