Chapter 5: Q6DQ (page 471)
Do corporations rely more on external or internal funds as sources of financing?
Corporations rely more on external funds than internal as sources of financing.
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What is the difference between the following yields: coupon rate, current yield, and yield to maturity? (LO16-2)
What is the purpose of market stabilization activities during the distribution process?
In which foreign industry has privatization been most important?
Question: The Bowman Corporation has a \(18 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.5 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 9 percent call premium on the old issue. The underwriting cost on the new \)18,000,000 issue is \(530,000, and the underwriting cost on the old issue was \)380,000. The company is in a 35 percent tax bracket, and it will use an 8 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision.
c. Calculate the net present value.
How does the bond rating affect the interest rate paid by a corporation on its bonds?
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