What is the required after-tax refunding investment outlay

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Reference no: EM131296668

Oxford Corp. is considering refunding a $30,000,000, annual payment, 12% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $2 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 10% in today's market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $2 million. Oxford's marginal tax rate is 30%. The new bonds would be issued when the old bonds are called. What is the required after-tax refunding investment outlay, that is, the cash outlay at the time of the refunding?

(a) 4,520,000

(b) 3,020,000

(d) 5,020,000

(e) 5,520,000

Reference no: EM131296668

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