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In recent years, Haverhill Corporation has averaged a net income of $10 million per year on net sales of $100 million per year. It currently has no long-term debt but is considering a debt issue of $5 million. The interest rate on the debt would be 6 percent. Haverhill currently faces an effective tax rate of 35 percent. What would be Haverhill’s annual interest tax shield if it goes through with the debt issuance?

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The Warren Electric Company is considering refunding its $150 million, 12 percent debt issue with a 10 percent, 20-year debt issue. The existing (old) issue also matures in 20 years and now is callable at 105 percent of par. The unamortized issuance cost on the old issue is $600,000, and the issuance cost of the new issue is 0.4 percent.

Both the new and old debt issues will be outstanding for 4 weeks, resulting in overlapping interest. Warren Electric’s weightedcostofcapitalis10 percent and its marginal tax rate is 40 percent. The company’s treasurerfeelsthat the decline in interest rates has bottomed out.

Determine the net present value of refunding the old bond issue.

Avicorp has a $15.5 million debt issue outstanding, with a 6.3% coupon rate. The debt has semi-annual coupons, the next coupon is due in six months, and the debt matures in five years. It is currently priced at 92% of par value. a. What is Avicorp's pre-tax cost of debt? Note: Compute the effective annual return. (Another note: The pre-tax cost of debt is the yield to maturity (YTM) on the outstanding debt issue. We solve for the 6-month YTM on the bond: (This is what I have so far... not sure how they got $920 here:) ** $920 = (31.50/(1+YTM)) + (31.50/(1+YTM)^2)) + (31.50/(1+YTM)^9)) + (31.50 + 1,000)/(1+YTM)^10) Therefore, YTM = 4.1434% Then compute the effective annual return (EAR) as: EAR = (1 + 0.041434)^2 -1 = 0.084585 The pre-tax cost of debt is 4.1434% every 6 months, or 8.4585% per year. b. If Avicorp faces a 40% tax rate, what is its after-tax cost of debt? After-tax cost of debt = EAR x (1-TC) where Tc is Avicorp's tax rate. Then, After- tax cost of debt = 0.084585 x (1-0.4) = 0.050751 If Avicorps faces a 40% tax rate, the after-tax cost of debt is 5.0751%.

Hastings Corporation is interested in acquiring Vandell Corporation. Vandell has 1 million shares outstanding and a target capital structure consisting of 30% debt; its beta is 1.10 (given its target capital structure). Vandell has $9.12 million in debt that trades at par and pays an 7.1% interest rate. Vandell’s free cash flow (FCF0) is $1 million per year and is expected to grow at a constant rate of 6% a year. Both Vandell and Hastings pay a 35% combined federal and state tax rate. The risk-free rate of interest is 7% and the market risk premium is 5%. Hastings Corporation estimates that if it acquires Vandell Corporation, synergies will cause Vandell’s free cash flows to be $2.5 million, $2.8 million, $3.4 million, and $3.64 million at Years 1 through 4, respectively, after which the free cash flows will grow at a constant 6% rate. Hastings plans to assume Vandell’s $9.12 million in debt (which has an 7.1% interest rate) and raise additional debt financing at the time of the acquisition. Hastings estimates that interest payments will be $1.6 million each year for Years 1, 2, and 3. After Year 3, a target capital structure of 30% debt will be maintained. Interest at Year 4 will be $1.490 million, after which the interest and the tax shield will grow at 6%. Indicate the range of possible prices that Hastings could bid for each share of Vandell common stock in an acquisition. Round your answers to the nearest cent. Do not round intermediate calculations. The bid for each share should range between $ per share and $ per share.

The bid for each share should range between $ per share and $ per share.

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