Biology Forums - Study Force

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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