Calculate the present value of total inflows

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The Bowman Corporation has a bond obligation of $25 million outstanding, which it is considering refunding. Though the bonds were initially issued at 10 percent, the interest rates on similar issues have declined to 8.7 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a call premium of 9 percent on the old issue. The underwriting cost on the new $25,000,000 issue is $550,000, and the underwriting cost on the old issue was $440,000. The company is in a 35 percent tax bracket, and it will use an 11 percent discount rate (rounded aftertax cost of debt) to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. Calculate the present value of total outflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)

b. Calculate the present value of total inflows. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Calculate the net present value.

Reference no: EM131544046

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