NorthWest Water (NWW)
Five years ago, issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.
Refer to the data for . The amortization of flotation costs reduces taxes and thus provides an annual cash flow. What will the net increase or decrease in the annual flotation cost tax savings be if refunding takes place?
A. $6,480
B. $7,200
C. $8,000
D. $8,800
E. $9,680
Answer: C
You might also like to view...
In terms of the sales presentation, the ________ approach is often used by telemarketers, retail sales clerks, and new field salespeople
A) mission-sharing B) need-satisfaction C) problem-solution D) stimulus-response
Which of the following sets of strategies addresses the financial objectives of an organization?
A) Ansoff Growth Strategies B) Porter Generic Strategies C) Bowman's Strategy Clock D) Aaker Brand Strategies
In the long run, firms must approach outsourcing decisions based on cost alone to strengthen their core capabilities.
Answer the following statement true (T) or false (F)
Which of the following parties has primary liability on a draft?
A)The drawee B)The maker C)The drawer D)The indorser