《现代财务管理》 (美)麦克圭根(McGuigan,J.R) Moyer Instructor TestBank TB20B.docVIP

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《现代财务管理》 (美)麦克圭根(McGuigan,J.R) Moyer Instructor TestBank TB20B.doc

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PAGE 406 ? Appendix 20B/Bond Refunding Analysis Appendix 20B/Bond Refunding Analysis ? PAGE 407 PAGE 404 Appendix 20B Bond Refunding Analysis MULTIPLE CHOICE 1. In a bond refunding analysis, the principal benefit, or cash inflow, is the present value of the a. pretax interest savings over the life of the issue b. aftertax flotation cost savings c. aftertax interest savings over the life of the issue d. aftertax call premium ANS: C OBJ: TYPE: Fact TOP: Bond refunding analysis 2. In a bond refunding analysis, the net investment calculation includes a. aftertax call premium b. flotation cost of new debt c. overlapping interest d. all of the above ANS: D OBJ: TYPE: Fact TOP: Bond refunding analysis 3. Bond refunding occurs when a company redeems a callable issue and a. sells an equity issue, thereby reducing outstanding debt b. sells a new issue with a lower coupon rate c. sells a preferred issue with a low dividend rate d. none of the above is correct ANS: B OBJ: TYPE: Fact TOP: Bond refunding analysis 4. In bond refunding analysis the _____ is believed to be the most appropriate discount rate. a. after-tax cost of new debt b. firms marginal cost of capital c. weighted average cost of capital d. both b and c ANS: A OBJ: TYPE: Fact TOP: Bond refunding analysis 5. Bond _____ occurs when a firm exercises its option to redeem a callable bond issue and replaces it with a lower (interest) cost issue. a. redemption b. retirement c. recall d. refunding ANS: D OBJ: TYPE: Fact TOP: Bond refunding 6. If Alliant can issue a $110 million 20-year refunding bond at 7.45% and call an older $110 million issue with 20-years to maturity that had a coupon of 8.80%, what is the present value of the interest savings? Assume a 40% tax rate. a. $11,620,259 b. $17,820,000 c. $ 9,117,935 d. $29,561,100 ANS: A Solution: Old interest = $110(.088).6 =$5.808 million New interest=$110(.0745).6 =???????? $ .891 million PV = $891,000(PVIFA) =$11,620,259 (by calculator) OBJ: TYPE: E. Pr