The Bowman Corporation has an $13 million bond obligation outstanding that it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.4 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 $13,000,000 issue is $430,000, and the underwriting cost on the old issue was $320,000. The company is in a 35 percent tax bracket, and it will use an 12 percent discount rate to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Calculate the present value of total outflows.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.

Calculate the present value of total inflows.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.

Calculate the net present value.
Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.

Should the old issue be refunded with new debt?
multiple choice

Yes

No

Transcribed Image Text:← (3091) GloRilla, Cardi B - •×| 1 X → C A Appendix D Present value of an annuity of $1, PVIFA PV=A[1-(1/(1+i)³¹)] / i 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Question 1 - Chapter 16 Com x → Appendix D 25 30 40 50 X https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/finance/Block,%2018e/appendix_d.htm Period 1% 5% 6% 7% 8% 9% 10% 11% 13% 15% 16% 17% 12% 14% 18% 19% 20% 25% 30% 35% 40% 50% 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 0.667 1 2 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.440 1.361 1.289 3 3.161 2.802 2.508 2.263 1.883 2% 3% 4% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.224 1.111 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 1.952 1.816 1.696 1.589 1.407 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.362 2.166 1.997 1.849 1.605 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.605 3.517 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.689 2.436 2.436 2.220 2.035 1.737 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.951 2.643 2.385 2.168 1.824 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.329 3.329 2.925 2.598 2.331 1.922 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.665 2.379 1.948 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092 3.092 2.715 2.715 2.414 1.965 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 2.438 1.977 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 3.725 3.190 2.779 2.456 1.985 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 3.780 3.780 3.223 2.799 2.469 1.990 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 1.993 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 1.995 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.604 6.265 6.265 5.954 5.954 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.834 2.489 1.997 15.562 14.292 13.166 12.166 11.274 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.988 4.775 3.910 3.295 2.840 2.492 2.492 1.998 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 1.999 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 1.999 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4 870 3.954 3.954 3.316 2.850 2.497 1.999 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 2.000 25.808 22.396 19.600 17.292 15.372 15.372 13.765 13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 2.000 32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500 2.500 2.000 39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500 2.000 Type here to search 50°F Cloudy ^ @ 4») 8: https://ezto-cf-media.mhedu X Percent b Success Confirmation of Que X + Q ??? (6 ES 口 0 4:12 PM 12/4/2022 X :

Question

The Bowman Corporation has an $13 million bond obligation outstanding that it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.4 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 $13,000,000 issue is $430,000, and the underwriting cost on the old issue was $320,000. The company is in a 35 percent tax bracket, and it will use an 12 percent discount rate to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

Calculate the present value of total outflows.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Calculate the present value of total inflows.
Note: Do not round intermediate calculations and round your answer to 2 decimal places.
Calculate the net present value.
Note: Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places.
Should the old issue be refunded with new debt?
multiple choice
- Yes
- No

←
(3091) GloRilla, Cardi B - •×|
1 X
→ C
A
Appendix D
Present value of an annuity of $1, PVIFA
PV=A[1-(1/(1+i)³¹)] / i
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Question 1 - Chapter 16 Com x → Appendix D
25
30
40
50
X
https://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/finance/Block,%2018e/appendix_d.htm
Period 1%
5%
6%
7%
8%
9%
10%
11%
13%
15%
16% 17%
12%
14%
18% 19% 20% 25% 30% 35% 40% 50%
0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.800 0.769 0.741 0.714 0.667
1
2
1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.440 1.361 1.289
3
3.161 2.802 2.508 2.263 1.883
2% 3%
4%
0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901
1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713
1.224 1.111
2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 1.952 1.816 1.696 1.589 1.407
3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.362 2.166 1.997 1.849 1.605
4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605
3.605 3.517
3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.689 2.436
2.436 2.220 2.035 1.737
5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 2.951 2.643 2.385 2.168 1.824
6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.329
3.329 2.925 2.598 2.331 1.922
8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.463 3.019 2.665 2.379 1.948
9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 3.571 3.092
3.092 2.715
2.715 2.414 1.965
10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 3.656 3.147 2.752 2.438 1.977
11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 3.725 3.190 2.779 2.456 1.985
12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 3.780
3.780 3.223 2.799 2.469 1.990
13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 3.824 3.249 2.814 2.478 1.993
13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324
5.324 5.092 4.876 4.675 3.859 3.268 2.825 2.484 1.995
14.718 13.578 12.561 11.652 10.838 10.106 9.447
8.851
8.313 7.824 7.379 6.974 6.604
6.604 6.265
6.265 5.954
5.954 5.668 5.405 5.162 4.938 4.730 3.887 3.283 2.834 2.489 1.997
15.562 14.292 13.166 12.166 11.274
11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.988 4.775 3.910 3.295 2.840 2.492
2.492 1.998
16.398 14.992 13.754 12.659 11.690 10.828 10.059
9.372
8.756 8.201 7.702
7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 3.928 3.304 2.844 2.494 1.999
17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 3.942 3.311 2.848 2.496 1.999
18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4 870 3.954
3.954 3.316 2.850 2.497 1.999
22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 3.985 3.329 2.856 2.499 2.000
25.808 22.396 19.600 17.292 15.372
15.372 13.765
13.765 12.409 11.258 10.274 9.427 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979 3.995 3.332 2.857 2.500 2.000
32.835 27.355 23.115 19.793 17.159 15.046 13.332 11.925 10.757 9.779 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 3.999 3.333 2.857 2.500
2.500 2.000
39.196 31.424 25.730 21.482 18.256 15.762 13.801 12.233 10.962 9.915 9.042 8.304 7.675 7.133 6.661 6.246 5.880 5.554 5.262 4.999 4.000 3.333 2.857 2.500 2.000
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