None Problem 16-20 (modified)The Harding Corporation has $51.8 million of bonds outstanding that were issued at a coupon rate of 12.25 percent seven years ago.Interest rates have fallen to 10.9 percent. Preston Alter, the vice-president of finance, does not expect rates to fall any further. Thebonds have 18 years left to maturity, and Preston would like to refund the bonds with a new issue of equal amount also having 18 yearsto maturity. The Harding Corporation has a tax rate of 17.5 percent. The underwriting cost on the old issue was 4.3 percent of the totalbond value. The underwriting cost on the new issue will be 1.8 percent of the total bond value. The original bond indenture containeda five-year protection against a call, with an 8 percent call premium starting in the sixth year and scheduled to decline by one-halfpercent each year thereafter (Consider the bond to be seven years old for purposes of computing the premium). Use Appendix D.a. Compute the discount rate. (Round the final answer to 2 decimal places.)Discount rate8.25%b. Calculate the present value of total outflows. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimalplaces. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)Total outflows$ 344522c. Calculate the present value of total inflows. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimalplaces. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)Total inflows$4387467d. Calculate the net present value. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Donot round intermediate calculations. Round the final answer to nearest whole dollar. Negative amount should be indicated by aminus sign.)Net present value$e. Should the Harding Corporation refund the old issue?YesO No

Name: None Problem 16-20 (modified)The Harding Corporation has $51.8 million
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Description: None Problem 16-20 (modified)The Harding Corporation has $51.8 million of bonds outstanding that were issued at a coupon rate of 12.25 percent seven years ago.Interest rates have fallen to 10.9 percent. Preston Alter, the vice-president of finance, d

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d. Calculate the net present value. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar. Negative amount should be indicated by a minus sign.) Net present value Should the Harding Comeration refund the old incu

d. Calculate the net present value. (Enter the answers in whole dollars, not in millions. Round "PV Factor" to 3 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar. Negative amount should be indicated by a minus sign.) Net present value Should the Harding Comeration refund the old incu

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter3: The Financial Environment: Markets, Institutions And Investment Banking

Section: Chapter Questions

Problem 19PROB

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