Response to the following problem:
Suppose the Fiscke Company has $100 million face value bonds outstanding with a coupon of 12% (paid semiannually) and five years remaining to maturity. And suppose that Fiscke can refund this bond issue, replacing them with 8% coupon bonds of similar remaining maturity.
If flotation costs are 2% of the new bond's face value and the existing bonds are priced to yield 8%, should Fiscke refund the 12% bonds if its tax rate is:
a. 30%?
b. 50%?