16-3 Everything is the same except that issued $2 million with a coupon rate of 8 percent a call price of $1,060 at a discount of $20 per bond total discount of $40,000. flotation cost was $25,000 a $2 million new issue of 6 percent The flotation $30,000. The tax rate is 40 percent, and (c) at a 3.6 percent.

vear, $1,000 bonds with a co a with a coupon f$1,050 were sold 16-3 ount of $45,000. The initial $1.5 million new issue ds. The company the price The Lavely Company issued $1.5 million of 30-year, $1.000 rate of 9 percent five years ago. The bonds with a call at a discount of $30 per bond or with a total discount of flotation cost was $18,000. The company wishes to sell a $1.5 mil vear bonds in order to retire its existing bonds. The intends to sell its new bonds at their face value of $1,000 per bond costs of the new issue are estimated to be $22,000. The company's rate is 50 percent and the new bonds are sold four months before the are called 000 per bond. The flotation The company's marginal tax efore the old bonds (a) Determine the net cash outflow of the refunding operation. (b) Determine the annual interest savings of the refunding operation (c) Determine the present value of the interest savings over a 25-year period at a 5 percent discount rate. (d) Should the company refund its old bonds? (e) Use the internal-rate-of-return approach to determine whether the company should refund its old bonds or not