Npv of the bond refunding-uri corporation bonds

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URI Corporation bonds have a total face value of $25M, 17-years remaining, and a coupon rate of 15%. The bonds were issued at par 3 years ago with a flotation cost of $1M amortized (straight line) over the life of the bond. The call provision specifies a premium of 5% of face value if the bonds are to be retired. Bonds of firms with the same credit rating currently yield 11% in the market. The risk free rate is 8% and the corporate tax rate is 35%. If the refunding goes ahead, the new bonds are to be issued immediately by incurring a flotation cost of $1.2M to be amortized over the life of the new bonds. The old bonds are to be retired 2 months after the issuance of the new bonds in order to ensure the availability of funds in the refunding. What is the NPV of the bond refunding?

Reference no: EM132528709

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