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Waste Management, Unlimited (WM) has a $220 million, 9.2% coupon (paid semiannually), outstanding bond issue, which...

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Finance

Waste Management, Unlimited (WM) has a $220 million, 9.2% coupon(paid semiannually), outstanding bond issue, which matures inexactly 8 years, and WM is considering refunding the debt. The callprice per $1, 000-par-value bond is $1, 092. The replacement debtwould have a 7. 76% coupon (paid semiannually). The firm's tax rateis 30%. What is the net advantage to refunding (NA) in thiscase?

Answer & Explanation Solved by verified expert
3.9 Ratings (525 Votes)
Initial investment to refund bond aftertax call premium on old bond premium is tax deductible Call premium on old bond call price per bond par value per bond par value per bond total par value call premium on old bond 1092 1000 1000 220000000    See Answer
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