Question :
Bavarian Brew Bond
Bavarian Brew thinking about recalling $30 million of : 1325743
Bavarian Brew Bond
Bavarian Brew is thinking about recalling $30 million of 15 year, $1,000 par value bonds, that were issued ten years ago. The bonds carry a coupon rate of 7.8% and have a call price of $1,110. Initially the bonds generated total proceeds of $28.65 million and the flotation costs were $500,000. Bavarian Brew wants to sell $30 million of 5 year, $1,000 par value bonds with a 5.8% coupon rate to retire the old bonds. The flotation costs on the new bond issue are estimated to be $525,000. Due to having to issue the new bonds before the old bonds can be retired the company expects a period of 3 months were they have to pay interest on the old and the new bonds. Assume a tax rate of 34%
31.Refer to Bavarian Brew Bond. What is the call premium per bond?
a.$110
b.$100
c.$90
d.$125
32.Refer to Bavarian Brew Bond. What is the after tax cost of the call premium?
a.$3,300,000
b.$1,122,000
c.$2,178,000
d.$2,867,000
33.How much overlapping interest does Bavarian Brew have to pay on the old bonds after taxes?
a.$585,000
b.$386,100
c.$198,900
d.$494,500
34.Refer to Bavarian Brew Bond. What is the tax reduction caused by the unamortized discount on the old bonds?
a.$1,500,000
b.$1,000,000
c.$340,000
d.$187,000
35.Refer to Bavarian Brew Bond. What is the tax reduction caused by the unamortized flotation costs?
a.$500,000
b.$333,333
c.$56,667
d.$256,472
36.Refer to Bavarian Brew Bond. What is the initial investment in the new bond issue?
a.$2,635,767
b.$3,542,433
c.$2,178,000
d.$2,845,433
37.Refer to Bavarian Brew Bond. What are the annual after tax interest payments on the old bond?
a.$1,544,400
b.$2,340,000
c.$795,600
d.$1,858,900
38.Refer to Bavarian Brew Bond. What are the annual tax savings from the amortization of the discount on the old bond?
a.$1,500,000
b.$30,600
c.$160,000
d.$61,200
39.Refer to Bavarian Brew Bond. What are the annual tax savings from the amortization of the flotation costs on the old bond?
a.$11,333
b.$33,333
c.$21,999
d.$18,988
40.Refer to Bavarian Brew Bond. What are the annual after tax savings from paying off the old bonds?
a.$985,270
b.$1,544,400
c.$1,256,569
d.$1,502,467
41.Refer to Bavarian Brew Bond. What are the annual after tax interest cost on the new bond?
a.$1,148,400
b.$1,740,000
c.$591,600
d.$967,500
42.Refer to Bavarian Brew Bond. What are the annual tax savings from the amortization of the flotation cost of the new bonds?
a.$11,900
b.$35,700
c.$23,100
d.$27,500
43.Refer to Bavarian Brew Bond. What are the annual after tax debt payments on the new bond?
a.$1,112,700
b.$1,148,400
c.$1,235,300
d.$1,478,900
44.Refer to Bavarian Brew Bond. What are the annual net cash flow savings from issuing the new bonds?
a.$236,734
b.$478,923
c.$386,367
d.$529,645
45.Refer to Bavarian Brew Bond. What is the NPV of the proposed bond refinancing?
a.$907,484
b.-$907,484
c.-$895,453
d.$895,453
