The Bowman Corporation has a bond obligation of $10 million outstanding, which it is considering refunding....

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The Bowman Corporation has a bond obligation of $10 millionoutstanding, which it is considering refunding. Though the bondswere initially issued at 11 percent, the interest rates on similarissues have declined to 10.0 percent. The bonds were originallyissued for 20 years and have 10 years remaining. The new issuewould be for 10 years. There is a call premium of 7 percent on theold issue. The underwriting cost on the new $10,000,000 issue is$400,000, and the underwriting cost on the old issue was $290,000.The company is in a 35 percent tax bracket, and it will use an 9percent discount rate (rounded aftertax cost of debt) to analyzethe refunding decision. Use Appendix D for an approximate answerbut calculate your final answer using the formula and financialcalculator methods.
a. Calculate the present value of totaloutflows.
b. Calculate the present value of totalinflows.
c. Calculate the net present value.

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Part a Step 1 Calculate Present Value of Annual Tax Savings The present value of annual tax savings can be calculated with the use of PVPresent Value functionformula of EXCELFinancial Calculator The functionformula for PV is PVRateNperPMTFV where Rate IY Interest Rate Nper N Period PMT Payment here Annual Tax Savings and FV Future Value if any Here Rate 9 Nper 10 PMT Underwriting Cost on New IssueYearsTax Rate 4000001035 14000 and FV 0 Using these values in the above functionformula for PV we get Present Value of Annual Tax Savings PV910140000 8984721 Step 2 Calculate Net Cost of Annual Premium and Underwriting See Answer

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The Bowman Corporation has a bond obligation of $10 millionoutstanding, which it is considering refunding. Though the bondswere initially issued at 11 percent, the interest rates on similarissues have declined to 10.0 percent. The bonds were originallyissued for 20 years and have 10 years remaining. The new issuewould be for 10 years. There is a call premium of 7 percent on theold issue. The underwriting cost on the new $10,000,000 issue is$400,000, and the underwriting cost on the old issue was $290,000.The company is in a 35 percent tax bracket, and it will use an 9percent discount rate (rounded aftertax cost of debt) to analyzethe refunding decision. Use Appendix D for an approximate answerbut calculate your final answer using the formula and financialcalculator methods.a. Calculate the present value of totaloutflows.b. Calculate the present value of totalinflows.c. Calculate the net present value.