Straight-lined over the life of the issue

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Reference no: EM132016062

You currently have a $100,000,000, 14% coupon rate, 25 year outstanding issue that is 5 years old. You sold this issue with flotation costs of $2,800,000, straight-lined over 25 years. There is a 10% Call Premium and you can now sell a $100,000,000 issue with an 11% coupon for 20 years. There will be flotation costs of $2,500,000 on the new issue and a one-month delay between renewals. Currently, short-term rates are 9%, and you are at the 40% tax bracket. Flotation costs on the new issue will also be straight-lined over the life of the issue. Find the NPV of refunding.

Reference no: EM132016062

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