NorthWest Water (NWW)
Five years ago, NorthWest Water (NWW) 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 NorthWest Water (NWW). What will the after-tax annual interest savings for NWW be if the refunding takes place?
A. $664,050
B. $699,000
C. $768,900
D. $845,790
E. $930,369
Answer: B
You might also like to view...
Which statement is false?
A) In the computation of pension expense, a negative return on plan assets can be added. B) The amount of prior service cost is not included as an asset or a liability. C) Interest cost is equal to the projected benefit obligation at the end of the period multiplied by the discount rate used by the company. D) A lower-than-expected mortality rate creates a pension loss to a company.
Was that Aunt Joan who was sitting ________ your mother?
a. beside b. besides
Which of the following serves as a definition for decision variables for recency and frequency?
a. 1 if customers in a given recency and frequency should not be reached; 0 otherwise b. 1 if customers in a given recency and frequency should be reached; 0 otherwise c. 1 if customers in a given recency or frequency should not be reached; 0 otherwise d. 1 if customers in a given recency or frequency should be reached; 0 otherwise
Debtor's exemptions are provided under federal law and thus are the same in each state
Indicate whether the statement is true or false