Problem 20-6
Start with the partial model in the file Ch20 P06 Build a Model.xls. on the textbook\'s Web site. Schumman Shoe Manufacturer is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold years ago. Its amortizing $4.5 million floatation costs on the 10% bond over the issue\'s 30-year life. Shaumman\'s investment bankers have indicated that the companycould sell a new 22-year issue at an interest rate of 8% in today\'s market . Neither they or Schumann\'s management anticipate that interest rate will fall below 6 percent anytime soon, but there is a chance that interest rates will increase.
A. Perform a complete bond refunding analysis. What is the bond refunding\'s NPV?
B. At what interest rate on the new debt is the NPV of the refunding no longer positive?
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