【管理精品】LONG-TERM DEBT资料教程.pptVIP

Problem on Bond Refunding Baker Furniture, Inc. (BFI) has $8 million face value debt with a coupon rate of 12% (paid semi-annually). The current price of the debt is $1,030 per bond. The bonds are callable at $1,050 each. The debt was issued 2 years ago and matures in 8 years. Issue costs of $400,000 are being amortized on a straight line basis over the original life of the issue. Baker’s tax rate is 34%. New, non-callable 8-year debt, with a maturity value of $8 million, can be sold at par with a coupon rate of 8%. Issue costs of $150,000 on this new debt can be immediately expensed. Other issue expenses, amounting to $500,000 will be amortized over the life of the new issue. In addition, Baker can borrow, on an installment basis, up to $2 million for 8 years at 3.95% per 6-month period. Evaluate the net advantage to Baker’s refunding proposal. Problem on Bond Refunding Baker Furniture, Inc. (BFI) has $8 million face value debt with a coupon rate of 12% (paid semi-annually). The current price of the debt is $1,030 per bond. The bonds are callable at $1,050 each. The debt was issued 2 years ago and matures in 8 years. Issue costs of $400,000 are being amortized on a straight line basis over the original life of the issue. Baker’s tax rate is 34%. New, non-callable 8-year debt, with a maturity value of $8 million, can be sold at par with a coupon rate of 8%. Issue costs of $150,000 on this new debt can be immediately expensed. Other issue expenses, amounting to $500,000 will be amortized over the life of the new issue. In addition, Baker can borrow, on an installment basis, up to $2 million for 8 years at 3.95% per 6-month period. Evaluate the net advantage to Baker’s refunding proposal. Refunding High-Coupon Debt To compute the present value of these savings, use the periodic after-tax rate on the installment loan. Discount rate = (8.00%/2)(1 – 0.34) = 2.40% per period. Refunding High-Coupon Debt From this gross savings, deduct the after-tax transacti