URI Corporation bonds have a total face value of $25M, 17-years remaining, and a coupon rate of 15%. The bonds were issued at par 3 years ago with a flotation cost of $1M amortized (straight line) over the life of the bond. The call provision specifies a premium of 5% of face value if the bonds are to be retired. Bonds of firms with the same credit rating currently yield 11% in the market. The risk free rate is 8% and the corporate tax rate is 35%. If the refunding goes ahead, the new bonds are to be issued immediately by incurring a flotation cost of $1.2M to be amortized over the life of the new bonds. The old bonds are to be retired 2 months after the issuance of the new bonds in order to ensure the availability of funds in the refunding. What is the NPV of the bond refunding?
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
URI Corporation bonds have a total face value of $25M, 17-years remaining, and a coupon rate of 15%. The bonds were issued at par 3 years ago with a flotation cost of $1M amortized (straight line) over the life of the bond. The call provision specifies a premium of 5% of face
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