What is the net present value of the refunding

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Reference no: EM131910196

10 years ago, the City of Melrose issued $3,000,000 of 8% coupon, 30-year, semiannual payment, tax-exempt muni bonds.

The bonds had 10 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 5% of the face amount.

New 20-year, 6%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold.

What is the net present value of the refunding?

Note that cities pay no income taxes, hence taxes are not relevant.

Reference no: EM131910196

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