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. Calculate the present value of total outflows.

Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 690,000 preferred shares outstanding, and the annual dividend is $\$6.50$ per share. The vice president of finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 80 percent of the dividends in arrears. Robbins will compensate the preferred stockholders in the form of bonds paying 12 percent interest in a market environment in which the going rate of interest is 8 percent for similar bonds. The bonds will have a 10-year maturity. Using the bond valuation table in the Chapter , indicate the market value of a $\$1,000$ par value bond.

Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 690,000 preferred shares outstanding, and the annual dividend is $\$6.50$ per share. The vice president of finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 80 percent of the dividends in arrears. How much should the compensation be?

Robbins Petroleum Company is four years in arrears on cumulative preferred stock dividends. There are 690,000 preferred shares outstanding, and the annual dividend is $\$6.50$ per share. The vice president of finance sees no real hope of paying the dividends in arrears. She is devising a plan to compensate the preferred stockholders for 80 percent of the dividends in arrears. Based on market value, how many bonds must be issued to provide the compensation determined in part a? (Round to the nearest whole number.)

The treasurer of Kelly Bottling Company (a corporation) currently has $\$150,000$ invested in preferred stock yielding 8 percent. He appreciates the tax advantages of preferred stock and is considering buying $\$150,000$ more with borrowed funds. The cost of the borrowed funds is 13 percent. He suggests this proposal to his board of directors. They are somewhat concerned by the fact that the treasurer will be paying 5 percent more for funds than the company will be earning on the investment. Kelly Bottling is in a 35 percent tax bracket, with dividends taxed at 20 percent. Compute the aftertax borrowing cost to purchase the additional preferred stock. That is, multiply the interest cost times (1 - T)

A Peruvian investor buys 150 shares of a U.S. stock for $\$7,500$ ($\$50$ per share). Over the course of a year, the stock goes up by $\$4$ per share. Instead assume that the stock increases by $\$7$, but that the dollar decreases by 10 percent versus the nuevo sol. What will be the total percentage return to the Peruvian investor? Use 0.90 in place of 1.10 in this case.

You are the vice president of finance for Exploratory Resources, headquartered in Houston, Texas. In January 20X1, your firm’s Canadian subsidiary obtained a six-month loan of 150,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. $0.8995/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 20X1 contract (face value 5 C$150,000 per contract) was quoted at U.S. $0.8930/Canadian dollar. Explain how the Houston bank could lose on this transaction assuming no hedging

Refer to the information in the previous question for Vodafone Group Plc. The following price quotes (from Yahoo! Finance Bond Center) relate to its bonds payable as of late 2009. For example, the price quote indicates that the 4.625% bonds have a market price of 98.0 (98.0% of par value), resulting in a yield to maturity of 4.899%.

a. Assuming that the 4.625% bonds were originally issued at par value, what does the market price reveal about interest rate changes since bond issuance? (Assume that Vodafone’s credit rating has remained the same.)
b. Does the change in market rates since the issuance of these bonds affect the amount of interest expense reported on Vodafone’s income statement? Explain.
c. How much cash would Vodafone need to pay to repurchase the 4.625% bonds at the quoted market price of 98.0? (Assume no interest is owed when the bonds are repurchased.)
d. Assuming that the 4.625% bonds remain outstanding until maturity, at what market price will the bonds sell on the due date in 2018?

Contrast flood current and ebb current .

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.