For this and the next 2 questions. The City of Knights issued $10,000,000 of 9% coupon, 20-year, semiannual payment, tax-exempt municipal bonds. The bonds were issued 5 years ago. The bonds can be called now if the city chooses to do so. The call premium is 4% of the face value. New 15-year, 5%, semiannual payment bonds can be sold at par, but flotation costs on this issue would be 2% of the amount of bonds sold. Note that the combined costs associated with calling the existing bonds and paying for the flotation cost of the new issue represent the total initial outlay for the refinancing. Calculate this initial cost.

Calculate the total semi-annual savings associated with the refinancing.

What is the net present value of the refunding? Note that cities pay no income taxes. Hence, taxes are not relevant in this analysis.