Refunding Analysis Mullet Technologies is considering whether or not to refund a $125 million, 13% coupon, 30-year...

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Refunding Analysis
Mullet Technologies is considering whether or not to refund a$125 million, 13% coupon, 30-year bond issue that was sold 5 yearsago. It is amortizing $6 million of flotation costs on the 13%bonds over the issue's 30-year life. Mullet's investment banks haveindicated that the company could sell a new 25-year issue at aninterest rate of 11% in today's market. Neither they nor Mullet'smanagement anticipate that interest rates will fall below 11% anytime soon, but there is a chance that rates will increase.
A call premium of 9% would be required to retire the old bonds,and flotation costs on the new issue would amount to $3 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 6% 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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Factors influencing the bond retirementdecisionWhen bonds are issued there is a chance that interest ratesin the economy will change If interest rates decrease below thecoupon rate on the outstanding bonds an issuer will pay off thebond and refinance its debt at the lower interest rate prevalent inthe market The proceeds from the new issue will be used to settlethe interest and principal payment See Answer

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Refunding AnalysisMullet Technologies is considering whether or not to refund a$125 million, 13% coupon, 30-year bond issue that was sold 5 yearsago. It is amortizing $6 million of flotation costs on the 13%bonds over the issue's 30-year life. Mullet's investment banks haveindicated that the company could sell a new 25-year issue at aninterest rate of 11% in today's market. Neither they nor Mullet'smanagement anticipate that interest rates will fall below 11% anytime soon, but there is a chance that rates will increase.A call premium of 9% would be required to retire the old bonds,and flotation costs on the new issue would amount to $3 million.Mullet's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 6% annually during the interim period.Conduct a complete bond refunding analysis. What is the bondrefunding's NPV? Do not round intermediate calculations. Round youranswer to the nearest cent.$ What factors would influence Mullet's decision to refund nowrather than later?