is considering refunding a $30,000,000, annual payment, 12 percent coupon, 30-ye

Question

is considering refunding a $30,000,000, annual payment, 12 percent coupon, 30-year bond issue that was issued five years ago. It has been amortizing $2 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 10 percent in today's market. A call premium of 12 percent would be required to retire the old bonds, and flotation costs on the new issue would amount to $2 million. Oxford's marginal tax rate is 30 percent. The new bonds would be issued when the old bonds are called.

Explanation / Answer

refunding bonds

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