What is the bond refunding npv

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Problem 1: Fundit Inc. is considering whether to refund a $40 million, 14% coupon, a 30-year bond issue that was sold 5 years ago. Fundit's investment dealers have indicated that current yields on 25-year bonds of similar risk are 11.67%. A call premium of 7.5% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3.5 million. Fundit's marginal tax rate is 40%. The new bonds would be issued 1,5 months before the old bonds were called, with the proceeds being invested in short-term government securities returning 9% annually. What is the bond refunding's NPV? please provide calculations.

Reference no: EM132968107

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