The firm has correctly calculated the net advantage to refunding it (NA) to be $25,485. In your professional judgment, would a firm go ahead and undertake this refunding?

Question 3
With all else equal, an option on a bond could be
 

A.

A call the bondholder has, which increases the bond’s coupon rate

 

B.

A put the bondholder has, which lowers the bond’s coupon rate

 

C.

A call the issuing firm has, which increases the bond’s coupon rate

 

D.

A put the issuing firm has, which lowers the bond’s coupon rate

 

E.

A and B

 

F.

A and C

 

G.

A and D

 

H.

B and C

 

I.

B and D

 

J.

C and D

 

K.

all but A

 

L.

all but B

 

M.

all but C

 

N.

all but D

 

O.

all are true

 

P.

none are true

Question 4
A firm is considering refunding a $400 million debt issue with a lower coupon issue to lower the firm’s cost.  The firm has correctly calculated the net advantage to refunding it (NA) to be $25,485.  In your professional judgment, would a firm go ahead and undertake this refunding?
 

A.

yes

 

B.

no

Question 5
A firm has a 28% tax rate and has decided to issue $250 million of 12-year debt.  If it makes a U.S. public offering, the offering would carry an 8.5% coupon, paid semi-annually, and issuing would cost $2 million. What is the after-tax cost (APY) of borrowing?
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