Mullet Technologies is considering whether or not to refund a$100 million, 14% coupon, 30-year bond issue that was sold 5 yearsago. It is amortizing $3 million of flotation costs on the 14%bonds over the issue's 30-year life. Mullet's investment banks haveindicated that the company could sell a new 25-year issue at aninterest rate of 9% in today's market. Neither they nor Mullet'smanagement anticipate that interest rates will fall below 9% anytime soon, but there is a chance that rates will increase. A callpremium of 13% would be required to retire the old bonds, andflotation costs on the new issue would amount to $4 million.Mullet's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 6% annually during the interim period. Conduct a completebond refunding analysis. What is the bond refunding's NPV? Do notround intermediate calculations. Round your answer to the nearestcent.
Mullet Technologies is considering whether or not to refund a$100 million, 14% coupon, 30-year bond issue that was sold 5 yearsago. It is amortizing $3 million of flotation costs on the 14%bonds over the issue's 30-year life. Mullet's investment banks haveindicated that the company could sell a new 25-year issue at aninterest rate of 9% in today's market. Neither they nor Mullet'smanagement anticipate that interest rates will fall below 9% anytime soon, but there is a chance that rates will increase. A callpremium of 13% would be required to retire the old bonds, andflotation costs on the new issue would amount to $4 million.Mullet's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 6% annually during the interim period. Conduct a completebond refunding analysis. What is the bond refunding's NPV? Do notround intermediate calculations. Round your answer to the nearestcent.
