You currently have $20,000,000 bonds outstanding with a 10% coupon. They have 16 years to maturity. You are considering a refunding. Current yields are 8.5%. A new issue would also have 16 years to maturity. Underwriting costs would be $750,000 and there would be a 10% call premium. Your tax rate is 40%. Should you call the bonds and refund?

Question

Quizplus · Accepted Answer

The Answer of You currently have $20,000,000 bonds outstanding with a 10% coupon. They have 16 years to maturity. You are considering a refunding. Current yields are 8.5%. A new issue would also have 16 years to maturity. Underwriting costs would be $750,000 and there would be a 10% call premium. Your tax rate is 40%. Should you call the bonds and refund?

You Currently Have $20,000,000 Bonds Outstanding with a 10% Coupon