10. Refunding analysis Consider yourself the CEO of Touch Not Corp Management is condering whether the company should refund its $16,000, 17.00% coton, 10 year bond issue that was sold at par 3 years ago. The flotation cost on this issue was $4,080 that has been amortering on a straight line basis over the 10 year original life of the issue. ToughNot Coup has a tax rate of 40%, and current short-term rates are 6% You have collected the following data about the mosting bond and the potential new bood issues Data Collected New Blond Existing Bond $816,000 54,080 1816,000 $3,604 10 8 Capital Hotation cost Maturity Years Once issue Coupon Call premium After tax cost of new debt 3 0 17.00% 10.20% 13.60 6.121 The associate financial analyst on the finance team has done some preliminary refunding analysis and submitted the following calculations to you Consider this as step in the reunding analysis. Assume that the company pays no additional interest on the old issue and eam no interest on short: tems investments Determine if the calculations that the financiaralyst utimitted are correct and match your analysis by selecting Corrector incorrect the column on the right. (Note: Do not rood intermediate calculations Round final answers to the nearest whole dolin Schedule of Cash Flows Before Tax After Tax Check if Correct Investment Outlay Call premium on the old bond Hotation cost on new issue Immediate tax savings on old flotation cost expense Total after tax investment -$110,976 $3,604 $2,856 $66,586 -$3,604 $1,142 $69,048 >>> Based on the information given to you, solve for step 2 (annual flotation cost tax effects and step 3 (annual interest savings) by completing the following steps in the refunding analysis. Step 2Calculating the annual flotation cost tax effects 1. For tax purposes, the flotation cost must be amortized over the life of the new bond, which is 8 years. Thus, the after-tax saving every year for the next 8 years will be 2. Tough Nut Corp, however, will no longer receive a tax deduction on the rotation cost on the old issue and will thus lose an atter tax benefit of per year for the 3. The net amortization tax effect on the flotation cost is the difference between the old and the new issue, which is next years. If the company issues new bonds, the tax savings from amortizing the flotation costs will Step I Calculating the annual interest savings 1. The annual coupon payments on the old bonds were $133,720,00. Thus, the after tax interest on the old is 2: The iter tax interest on the new bonds is Thus, the net annual interest savings after tax will be At the final stage of the refunding analysis, you need to calculate the net present values (NPV) of the wavings and costs and the NPV of the entire refunding operation (Round your answer to two decimal places) Step 4: Calculating the NPV of the refunding Value Present value of amortized tax effects Present value of interest savings Net investment outlay NPV from refunding -569,048