Problem 18-07 Refunding Analysis Mullet Technologies is considering whether or not to refund a $100 million, 12%...

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Finance

Problem 18-07
Refunding Analysis Mullet Technologies is considering whether ornot to refund a $100 million, 12% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $9 million of flotationcosts on the 12% bonds over the issue's 30-year life. Mullet'sinvestment banks have indicated that the company could sell a new25-year issue at an interest rate of 11% in today's market. Neitherthey nor Mullet's management anticipate that interest rates willfall below 11% any time soon, but there is a chance that rates willincrease.
A call premium of 8% would be required to retire the old bonds,and flotation costs on the new issue would amount to $5 million.Mullet's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 5% annually during the interim period.
Conduct a complete bond refunding analysis. What is the bondrefunding's NPV? Do not round intermediate calculations. Round youranswer to the nearest cent. _$
What factors would influence Mullet's decision to refund nowrather than later?
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Problem 18-07Refunding Analysis Mullet Technologies is considering whether ornot to refund a $100 million, 12% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $9 million of flotationcosts on the 12% bonds over the issue's 30-year life. Mullet'sinvestment banks have indicated that the company could sell a new25-year issue at an interest rate of 11% in today's market. Neitherthey nor Mullet's management anticipate that interest rates willfall below 11% any time soon, but there is a chance that rates willincrease.A call premium of 8% would be required to retire the old bonds,and flotation costs on the new issue would amount to $5 million.Mullet's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 5% annually during the interim period.Conduct a complete bond refunding analysis. What is the bondrefunding's NPV? Do not round intermediate calculations. Round youranswer to the nearest cent. ___________$What factors would influence Mullet's decision to refund nowrather than later?____________________________________________