Five years ago, RENO Inc. issued $60M worth of callable debentures, maturing in 25 years at a coupon rate of 8% and a call premium of 6%. New rates on similar risk binds today are 6%. Experts have assured management that rates are not likely to go any lower. Flotation costs on any new issue of debentures are estimated to be $2.65 M. The corporate tax rate is 40%. Should Reno refund the existing issue? Find the NPV of refunding. (NPV = $4.84M Refund)

Suppose the new bonds will be issued one month before the old bonds are retired , with the proceeds invested in short-term government T-bill at 5%. Recalculate the NPV of refunding

(NPV = $4.75M)