Purchase Solution

Bond Issued and Bond Flotation Costs

Not what you're looking for?

Ask Custom Question

Company issued 10 year bonds yesterday at their par value of $1,000. Bonds pay $60 in interest every six months, and their price has remained at the $1,000 issue price. Company has determined an additional $2,000,000 is needed and will issue new 10 year, $1,000 par bonds that pay $40 in interest every six months. If both bonds provide investors with the same yield how many of the new bonds must be issued to raise $2,000,000. Ignore the day or two difference between the bonds issue dates and any bond flotation costs.

Purchase this Solution
Solution Summary

The solution determines how many new bonds need to be issued to raise $2,000,000.

Purchase this Solution
Free BrainMass Quizzes
Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Operations Management

This quiz tests a student's knowledge about Operations Management

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

View More Free Quizzes
Related BrainMass Solutions

  • Bond Refunding Analysis for Mullet Technologies

    A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullet's marginal federal-plus-state tax rate is 40%.

  • OID Bond Questions

    Disregard flotation costs, and round your final answer up to a whole number of bonds. Number of OID bonds issued = $ 3,000,000/ Price of OID bonds Bond Par is issued at Par.

  • Bond refunding

    For the Net Flotation Cost Tax Savings, you just sum up the interest tax savings (or loss) from the new issue flotation costs and the old issue flotation costs. 10.

  • Finance:Bond and stock valuation, cost of capital etc.

    Flotation costs of $30 per bond will be incurred in the process (which implies that f = 2.97%, or 0.0297 in decimal form) and the firm is in a 40% tax bracket. a. Find the net proceeds from the sale of each bond for Warren Industries. b.

  • Breakeven Interest Rate for Thompson Enterprises

    If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations--assume that the firm's tax rate is zero.

  • Cost of Equity and Debt for HD Industries

    2) Suppose HD issues 30 year debt with a par value of $1000 and a coupon rate of 10%, paid annually. If flotation costs are 2%, what is the after tax rate cost of debt for the new bond issue?

  • Company Cost of Capital

    A debt issue of $1,000 par value, 8 percent bonds, maturing in 20 years and paying semiannually, will sell for $1,100. Flotation costs for the bonds will be $20 per bond. Current stock on the firm is currently selling at $80 per share.

  • Convertible Bonds and Calculating Flotation Costs

    The solution explains some questions relating to convertible bonds, flotation costs and option prices

  • Description of Bond refunding

    The 5-year, 10 percent, annual payment bond can be sold at par, but flotation costs on this issue would be 4 percent, or $40,000. What is the net present value of the refunding?

View More Related Solutions