11. Refunding analysis Consider yourself the CFO of ToughNut Corp. Management is considering whether the company should refund its $960,000, 20.00% coupon, 10-year bond issue that was sold at par 3 years ago. The flotation cost on this issue was $4,800 that has been amortizing on a straight-line basis over the 10-year original Iife of the issue. ToughNut Corp. has a tax rate of 35%, and current short-term rates are 6%. You have collected the following data about the existing bond and the potential new bond issue: Data Collected Existing Bond $960,000 $4,800 10 New Bond $960,000 $4,240 Capital Flotation cost Maturity Years since issue Coupon Call premium 20.00% 16.00% 12.00% fter-tax cost of new debt 7.80% The associate financial analyst on the finance team has done some preliminary refunding ahalysis and submitted the following calculations to you. Consider this as step 1 in the refunding analysis. Assume that the company pays neo additional interest on the old issue and earns no interest on short-term investments. Check if the calculations that the financial analyst submitted are correct and match your analysis. Check each box that has a correct value. If a value is incorrect, do not check the corresponding box. Step 1: Determining the initial investment outlay Schedule of Cash Flows Before Tax After Tax Check if Correct Investment Outlay Call premium on the old bond Flotation cost on new issue Immediate tax savings on old fiotation cost expense $153,600 $99,840 -$4,240-$4,240 $3,360 $1,176 -$102,904 Total after-tax investment