Assignment: Application – To Call or Not To Call
Decisions involving capital expenditures often require managers to weigh the costs and benefits of different options related to the financing of a project. For instance, deciding when to call a bond before maturity due to changing interest rates can lower the overall cost of a project significantly through refinancing. So, it is important to be able to understand the real interest rate being paid out to your bondholders (yield) at any given time.
For this Assignment, review the information presented in Problem 7-18 on page 255 of your course text. You will utilize the information in this week’s readings and media to make a recommendation with regard to when to call a bond.
- Prepare a spreadsheet using Excel or a similar program in which you compute the items listed in parts a, b, and d. Be sure to compute the Yield-to-Maturity (YTM) and Yield-to-Call (YTC) for each of years 5, 6, 7, 8, and 9.
- Utilizing Word, prepare a written report to your finance director:
- Include a detailed explanation of the conclusion you reached concerning whether or not to call the bond before maturity.
- If your recommendation is to call the bond early, explain when to call the bond and your rationale.
- Discuss the advantages and disadvantages of using a long-term loan instead of a bond.
By Day 7
Submit your Assignment (both your Excel and Word files).
General Guidance on Application Length:
Your Assignment, due by Day 7, will typically be 2–3 pages in length as a general expectation/estimate for each bullet point. Refer to the rubric for the Week 3 Assignment for grading elements and criteria. Your Instructor will use the rubric to assess your work.
Submission and Grading Information
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- Please save your Assignment using the naming convention “WK3Assgn+last name+first initial.(extension)” as the name.
- Click the Week 3 Assignment Rubric to review the Grading Criteria for the Assignment.
- Click the Week 3 Assignment link. You will also be able to “View Rubric” for grading criteria from this area.
- Next, from the Attach File area, click on the Browse My Computer button. Find the document you saved as “WK3Assgn+last name+first initial.(extension)” and click Open.
- If applicable: From the Plagiarism Tools area, click the checkbox for I agree to submit my paper(s) to the Global Reference Database.
- Click on the Submit button to complete your submission.