Refunding Analysis Mullet Technologies is considering whether or not to refund a $250 million, 15% coupon,...

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Refunding Analysis Mullet Technologies is considering whether ornot to refund a $250 million, 15% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $3 million of flotationcosts on the 15% 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 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 4% annually during the interim period.
a. Conduct a complete bond refunding analysis. What is the bondrefunding's NPV? Do not round intermediate calculations. Round youranswer to the nearest cent.
b. What factors would influence Mullet's decision to refund nowrather than later?

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Given data Existing bond issue 250000000 New bond issue 250000000 Flotation cost 3000000 Flotation cost 7000000 Maturity of the original debt years 30 Maturity years 25 Years since issue 5 New cost of debt 11 Call premium 8 Aftertax cost of debt 66 Original coupon rate 15 Tax rate 40 Shortterm interest rate 4 Calculations Step 1 Cash flow schedule Formula Aftertax investment Beforetax Aftertax Aftertax beforetax1tax rate Call premium on the old bond 20000000 12000000 It cannot be expensed immediately so See Answer

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Refunding Analysis Mullet Technologies is considering whether ornot to refund a $250 million, 15% coupon, 30-year bond issue thatwas sold 5 years ago. It is amortizing $3 million of flotationcosts on the 15% 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 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 4% annually during the interim period.a. Conduct a complete bond refunding analysis. What is the bondrefunding's NPV? Do not round intermediate calculations. Round youranswer to the nearest cent.b. What factors would influence Mullet's decision to refund nowrather than later?