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What is the npv if nww refunds the bonds today

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Reference no: EM132613717

Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NWW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.

Problem 1: Refer to the data for NorthWest Water (NWW). What is the NPV if NWW refunds its bonds today?

Option a. $1,838,933

Option b. $2,037,599

Option c. $2,241,359

Option d. $1,746,987

Option e. $1,935,71

Reference no: EM132613717

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