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

Benton company (bc), a calendar year entity, has one owner, who is in the 37% federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). bc's gross income is $395,000, and its ordinary trade or business deductions are $245,000. ignore the standard deduction (or itemized deductions) and the deduction for qualified business income. if required, round computations to the nearest dollar. a. bc is operated as a proprietorship, and the owner withdraws $100,000 for personal use. bc's taxable income for the current year is $ , and the tax liability associated with the income from the sole proprietorship is $ . b. bc is operated as a c corporation, pays out $100,000 as salary, and pays no dividends to its shareholder. bc's taxable income for the current year is $ , and bc's tax liability is $ . the shareholder's tax liability is $ . c. bc is operated as a c corporation and pays out no salary or dividends to its shareholder. bc's taxable income for the current year is $ , and bc's tax liability is $ . d. bc is operated as a c corporation, pays out $100,000 as salary, and pays out the remainder of its earnings as dividends. bc's taxable income for the current year is $ , and bc's tax liability is $ .

You are president of a large corporation. at a typical monthly meeting, each of your vice presidents gives standard area reports. in the past, these reports have been good, and the vps seem satisfied about their work. based on situational approach to leadership, which leadership style should you exhibit at the next meeting?

The uptowner just paid an annual dividend of $4.12. the company has a policy of increasing the dividend by 2.5 percent annually. you would like to purchase shares of stock in this firm but realize that you will not have the funds to do so for another four years. if you require a rate of return of 16.7 percent, how much will you be willing to pay per share when you can afford to make this investment?