New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14%
ID: 2668423 • Letter: N
Question
New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. 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. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.What is the NPV if NYW refunds its bonds today?a. $1,746,987
b. $1,838,933
c. $1,935,719
d. $2,037,599
e. $2,241,359
Explanation / Answer
New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. 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. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.What is the NPV if NYW refunds its bonds today?
a. $1,746,987
b. $1,838,933
c. $1,935,719
d. $2,037,599
e. $2,241,359
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