A Firm Has $45,000,000 of Preferred Shares Outstanding That Have

question 41

Essay

A firm has $45,000,000 of preferred shares outstanding that have a yield of 10% on par and are callable at a 3% premium.New issues will cost $980,000 in issuing and underwriting expenses.
a)At what interest rate would the firm want to refinance?
b)If the dividend yield drops to 8 percent, how long will it take before the present value of the interest savings exceeds the cost of refinancing?

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Definitions:

Respect for Persons

A principle that emphasizes treating individuals with dignity, acknowledging their autonomy, and recognizing their rights.

Categorical Imperative

A foundational concept in Kantian ethics that proposes an action is morally right if it can be universally applied as a principle for behavior, emphasizing duty over consequences.

Law of Reason

A principle suggesting that the laws governing human conduct should be based on logic, ethics, and rationality rather than on arbitrary dictums or supernatural beliefs.

Hypothetical Imperative

A command or rule that applies conditionally, suggesting action is necessary to achieve a particular end or goal, as opposed to moral absolutes.