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Assume that you issue $ 1 0 million, 6 % bonds on January 2 , 2 0 0 9 and use the proceeds and other

Assume that you issue $

10

million,

6 %

bonds on January

2, 2009

and use the proceeds and other cash to refund the existing $

10

million,

8 %

bonds. What is the present value of the savings generated by refinancing?

(

Hint: Savings

=

PV of old bond

PV new bond

additional cash

)

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