This morning—the day the bond issue is to go to market—Karen, one of our investment bankers, called to let me know that two other similar issues are being marketed. Our issue is for $50 million, carrying a 5.9% coupon and a 25-year maturity. Karen recommends that we price our issue to yield 6.12%. I need to make a recommendation on how to price our issue. Since the CFO must make the final decision to proceed or not with the issue, this is of the utmost urgency.
1. Calculate the cost of repricing the bond issue.
2. Please provide the expected additional cost associated with Karen’s recommendation of pricing the issue to yield the more competitive return.
3. Provide the additional cost to the company.