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The Hudson corporation has a $15 million bond obligation outstanding which is considering refunding.
The Hudson corporation has a $15 million bond obligation outstanding which is considering refunding. Though the bonds were initially issued a 9 percent, originally issued for 15 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 under on the old issue was $450,000. The company is in a net 30 percent tax bracket, and it will use a 5 percent discount rate(rounded aftertax cost of debt) to analyze the refunding decision.
Should the old issue be refunded with new debt?
a. Calculate the present value of total outflows.Call Premium = 9%*18000000 = 1620000Underwriting cost = 530000Present value of total outflows = 2150000b. Calculate the present value of total...