Problem 1: Long-term Debt Financing INPUT
Old issue New issue
Size (issued at par) 10,000,000 10,000,000
Coupon rate 11.00% 8.00% paid semiannually
Discount rate: cost of capital 15.00%
Total life 20 8 years
Term to maturity TTM 8 8 years
Call premium 4%
Underwriting cost (issue cost) 200,000 240,000
Corporate Income Tax rate 20%
Option 1: Keep the old issue
Option 2: Call the old issue and implement the new issue
Requirement: Determine which option the firm should choose
Notes for tax deductible items:
Call premium is an expense
Underwriting cost is an intangible fixed asset. The write-off of it is considered as a loss
Amortization of underwriting cost is an expense
Coupon is interest expense

Use this image to answer the following question. when the economy is operating at point b, the us congress is most likely to follow

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