Refunding Analysis Mullet Technologies is considering whether or not to refund a $100 million, 14% coupon,...

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Refunding Analysis Mullet Technologies is considering whether ornot to refund a $100 million, 14% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $3 million of flotationcosts on the 14% 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 9% would be required to retire the oldbonds, and flotation costs on the new issue would amount to $7million. Mullet's marginal federal-plus-state tax rate is 40%. Thenew bonds would be issued 1 month before the old bonds are called,with the proceeds being invested in short-term governmentsecurities returning 5% annually during the interim period. Conducta complete bond refunding analysis. What is the bond refunding'sNPV? Do not round intermediate calculations. Round your answer tothe nearest cent.

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NPV of refunding decision Total cash outflow for refund See Answer

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Refunding Analysis Mullet Technologies is considering whether ornot to refund a $100 million, 14% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $3 million of flotationcosts on the 14% 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 9% would be required to retire the oldbonds, and flotation costs on the new issue would amount to $7million. Mullet's marginal federal-plus-state tax rate is 40%. Thenew bonds would be issued 1 month before the old bonds are called,with the proceeds being invested in short-term governmentsecurities returning 5% annually during the interim period. Conducta complete bond refunding analysis. What is the bond refunding'sNPV? Do not round intermediate calculations. Round your answer tothe nearest cent.