Reference no: EM132546447

Mbullet Technologiesis considering whether or not to refund a $225 million, 13% coupon, 30 year bond issue that was sold 5 years ago. It is amortizing $6 million of flotation costs on the 13% bonds over the issuer's 30 year life. Muller's investment banks have indicated that the company could sell a new 25 year issue at an interest rate of 10% in today's market. Neither they or Mullet's management anticipate that interest rates will fall below 10% any time soon, but there is a chance that rates will increase. A call premium of 13% would be required to retire the old bonds, and floatatiin costs on the new issue would amount to $4 million. Mullet's marginal federal-plus-state tax rate is 40%. The new bonds would be issued 1 month before the old bonds are called, with the proceeds being invested in short term government securities returning 6% annually dur8the interim period.

Question A. Conduct a complete bond refunding analysis. What is the bond refunding 's NPV? Do not round intermediate calculations. Round your answer to the nearest cent.

Question B. What factors would influence Mullet's decision to refund now rather than later?