Jan Volk, financial manager of Green Sea Services (GSS), has been asked by her boss to review GSS's outstanding debt issues for possible bond refunding. Five years ago, GSS issued $40,000,000 of 9%, 25-year debt. The issue, with semiannual coupons, is currently callable at a premium of 9%, or $90 for each $1,000 par value bond. Flotation costs on this issue were 6%, or $2,400,000. 

Volk believes that GSS could issue 20-year debt today with a coupon rate of 6%. The firm has placed many issues in the capital markets during the past 10 years, and its debt flotation costs are currently estimated to be 4% of the issue's value. GSS's tax rate is 30%. Assume Volk will time the sale of the new bonds to match the refunding of the existing bonds (i.e., there is no overlap period). Help Volk conduct the refunding analysis by answering the following questions: 

a. What is the total dollar call premium required to call the old issue? Is it tax deductible? What is the net after-tax cost of the call?

b. What is the dollar flotation cost on the new issue? Is it immediately tax deductible? What is the after-tax flotation cost?

c. What is the cash outlay required to refund the old issue?

d. What is the annual tax savings that arises from amortizing the flotation costs on the new issue?

e. What is the semiannual after-tax interest savings that would result from the refunding? 

f. Thus far, Volk has identified two future cash flows: (1) the new-issue flotation cost tax savings and (2) after-tax interest savings. What is the appropriate discount rate to apply to these future cash flows? What is the present value of the flotation cost tax shield and of the interest savings?

g. What is the NPV of refunding?