18–6 Refunding AnalysisJan Volk, financial manager of Green Sea Transport (GST), has been askedby…

18–6 Refunding AnalysisJan Volk, financial manager of Green Sea Transport (GST), has been askedby her boss to review GST’s outstanding debt issues for possible bond re?funding. Five years ago, GST issued $40,000,000 of 11%, 25-year debt. Theissue, with semiannual coupons, is currently callable at a premium of 11%,or $110 for each $1,000 par value bond. Flotation costs on this issue were6%, or $2,400,000.Volk believes that GST could issue 20-year debt today with a coupon rateof 8%. The firm has placed many issues in the capital markets during the last10 years, and its debt flotation costs are currently estimated to be 4% of theissue’s value. GST’s federal-plus-state tax rate is 40%.