Firm A is considering whether or not to refund a $70 million, 10% coupon, 30-year...
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Firm A is considering whether or not to refund a $70 million, 10% coupon, 30-year bond issue that was sold 5 years ago (Call protection = 5 years). Firm A could sell a new 8%, 25-year bond today to refund the old debt. The effective tax rate for the firm is 25%. The new bond will be issued 1 month before the old bonds are called, with the proceeds being invested in short-term government securities returning 5% annually during the interim period. What is the net after-tax interest income (expense)during the interim period (Double interest month)? Net after-tax interest income of $196,875 Net after-tax interest expense of $196,875 Net after-tax interest expense of $218,750 Net after-tax interest income of $218,750
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