New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called. What is the NPV if NYW refunds its bonds today? I am trying to ensure that I have this correct, requesting confirmation. when using the tool provided through excel I get a number closes to 1, 837,823,80 but searching your data base it contains 2,037,599. what could be causing the descripancy. Please review and tell me what I am doing wrong. Current bond issue information Par value $50,000,000 coupon rate 14% original maturity 30 remaining maturity 25 original flotation costs $3,000,000 Call premium 14% Tax rate 40% New issue information Coupon rate 11.7% maturity 25 flotation costs $3,000,000 Time between issues (months) 1 rate on surplus funds (annual) 6% a. Perform a complete bond refunding analysis. What is the bond refunding's NPV? Initial investment outlay to refund old issue: Call premium on old issue = 7,000,000.00 After-tax call premium = 4,200,000.00 New flotation cost = 3,000,000.00 Old flotation costs already expensed = 500,000.00 Remaining flotation costs to expense = 2,500,000.00 Tax savings from old flotation costs = 1,000,000.00 Additional interest on old issue after tax = 1,750,000.00 Interest earned on investment in T-bonds after tax = 750,000.00 Total investment outlay = 7,200,000.00 Annual Flotation Cost Tax Effects: Annual tax savings on new flotation = 48,000.00 Tax savings lost on old flotation = 40,000.00 Total amortization tax effects = 8,000.00 Annual interest savings due to refunding: Annual after tax interest on old bond = 4,200,000.00 Annual after tax interest on new bond = 3,501,000.00 Net after tax interest savings = 699,000.00 Annual cash flows = 707,000.00 NPV of refunding decision = $1,837,832.80