What is the net present value of the refunding

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Reference no: EM132011042

The City of Charleston issued $5,000,000 of 10.5% coupon, 20 year, annual payment, tax-exempt muni bond. The bonds had 5 years of call protection, but now the bonds can be called if the city chooses to do so. The call premium would be 6.5% of the face amount. New 13 year, 8.5%, annual payment, bonds can be sold at par, but flotation costs on this issue would be 4% 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: EM132011042

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