Ranger Inc

question 95

Multiple Choice

Ranger Inc.would like to issue new 20-year bonds.Initially, the plan was to make the bonds non-callable.If the bonds were made callable after 5 years at a 5% call premium, how would this affect their required rate of return?

• A) There is no reason to expect a change in the required rate of return.
• B) The required rate of return would decline because the bond would then be less risky to a bondholder.
• C) The required rate of return would increase because the bond would then be more risky to a bondholder.
• D) It is impossible to say without more information.
• E) Because of the call premium, the required rate of return would decline.

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Definitions:

Estimated Fixed Costs

Predicted expenses that do not fluctuate with the level of production or sales over a certain period of time.

Break-even Point

The point at which total costs and total revenue are equal, meaning that there are no net losses or gains.

Sales

The total revenue generated from the sale of goods or services related to a company's primary operations.

Materials Cost

The total expense incurred from acquiring raw materials used in the manufacture of products.