The Robinson Corporation has $\$ 43$ million of bonds outstanding that were issued at a coupon rate of $113 / 4$ percent seven years ago. Interest rates have fallen to $10^{3 / 4}$ percent. Mr. Brooks, the vice president of finance, does not expect rates to fall any further. The bonds have 17 years left to maturity, and Mr. Brooks would like to refund the bonds with a new issue of equal amount also having 17 years to maturity. The Robinson Corporation has a tax rate of 30 percent. The underwriting cost on the old issue was $2.4$ percent of the total bond value. The underwriting cost on the new issue will be $1.7$ percent of the total bond value. The original bond indenture contained a five-year protection against a call, with a 9 percent call premium starting in the sixth year and scheduled to decline by one-half percent each year thereafter. (Consider the bond to be seven years old for purposes of computing the premium.) Assume the discount rate is equal to the aftertax cost of new debt rounded up to the nearest whole number. Compute the discount rate.

What is a Eurobond?

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 aftertax cost of debt) to analyze the refunding decision. Should the old issue be refunded with new debt?

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 aftertax cost of debt) to analyze the refunding decision. Calculate the net present value.

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 aftertax cost of debt) to analyze the refunding decision. Calculate the present value of total inflows.

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 aftertax cost of debt) to analyze the refunding decision. Calculate the present value of total outflows.

Route Canal Shipping Company has the following schedule for aging of accounts receivable: If the firm had $1,500,000 in credit sales over the four-month period, compute the average collection period. Average daily sales should be based on a 120-day period.

Discuss the advantages and disadvantages of debt.

Highland Mining and Minerals Co. is considering the purchase of two gold mines. Only one investment will be made. The Australian gold mine will cost $\$ 1,649,000$ and will produce $\$ 353,000$ per year in years 5 through 15 and $\$ 503,000$ per year in years 16 through 25 . The U.S. gold mine will cost $\$ 2,054,000$ and will produce $\$ 282,000$ per year for the next 25 years. The cost of capital is 13 percent. Which investment should be made? (Note: In looking up present value factors for this problem, you need to work with the concept of a deferred annuity for the Australian mine. The returns in years 5 through 15 actually represent 11 years; the returns in years 16 through 25 represent 10 years.)

Specter Co. combines cash and cash equivalents on the balance sheet. Using the following information, determine the amount reported on the year-end balance sheet for cash and cash equivalents.

• $3,000 cash deposit in checking account.

-$20,000 bond investment due in 20 years.

• $5,000 U.S. Treasury bill due in 1 month.

-$200, 3-year loan to an employee.

• $1,000 of currency and coins.

-$500 of accounts receivable.

A $\$1,000$ par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has 5 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Although the same dollar amounts are involved in part b and c, explain why the percentage gain is larger than the percentage loss

A $\$1,000$ par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has 5 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Now assume Mrs. Pinson buys the bond at its current market value and holds it to maturity, what will her percentage return be?

A $\$1,000$ par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has 5 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. If Mr. Robinson initially bought the bond at par value, what is his percentage loss (or gain)?

A $\$1,000$ par value bond was issued 20 years ago at a 9 percent coupon rate. It currently has 5 years remaining to maturity. Interest rates on similar debt obligations are now 10 percent. Compute the current price of the bond using an assumption of semiannual payments.