Question: An outstanding bond issue of $25,000,000 matures in 20 years and carries a 1 5-percent annual coupon rate. The existing indenture allows redemption at the following call premiums:
From 5-9 years: 10 percent
From 10-14 years: 6 percent
After 15 years: 2 percent
After-tax issuing and underwriting expenses would be $320,000 in all cases, and the firm's tax rate is 40 percent. To what level would interest rates have to decline in order to make refunding attractive in year 5? year 10? year 15?