Calculate the npv of the proposed refunding

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Five years ago, Sportify Inc. issued a 20-year bond with an annual coupon rate of 12% to finance its $60 million oversea expansion (assume coupons are paid annually in this question). Because of the decreasing interest rates, it is considering the possibility of replacing it by a new 7% bond. To call the old bond, Sportify must pay the par value plus 3 annual coupons. The total flotation costs on the new issues are expected to be $1 million. The new bond will have to be issued one month before the old bondis called. During the overlap period, the proceeds from the new bond will earn 0.4% per month. The company's tax rate is 20%. Calculate the NPV of the proposed refunding.

Reference no: EM133110953

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