Problem 16-17 Refunding decision [LO 16-3] The Bowman Corporation has a bond obligation of $11 million outstanding, which it is considering refunding. Though the bonds were initially issued at 12 percent, the interest rates on similar issues have declined to 110 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 8 percent call premium on the old issue. The underwriting cost on the new $11,000,000 issue is $410,000, and the underwriting cost on the old issue was $300,000. The company is in a 35 percent tax bracket, and it will use an 10 percent discount rate to analyze the refunding decision. Use Appendix for an approximate answer but calculate your final answer using the formule and financial calculator methods e. Calculate the present value of total outflows. (Do not round Intermediate calculations and round your answer to 2 decimal places) Answer is complete and correct. PV of total outflows 393,824.00 b. Calculate the present value of total inflows (Do not round Intermediate calculations and round your answer to 2 decimal places) Answer is complete but not entirely correct. 401838 90 PV of total outflows b. Calculate the present value of total inflows. (Do not round Intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. PV of total outflows 401.838.00 c. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places.) Answer is complete but not entirely correct. Net present value (3,111,042.00) d. Should the old issue be refunded with new debt? Yes No Problem 16-17 Refunding decision [LO 16-3] The Bowman Corporation has a bond obligation of $11 million outstanding, which it is considering refunding. Though the bonds were Initially issued at 12 percent, the interest rates on similar issues have declined to 11.0 percent. The bonds were originally issued for 20 years and have 10 years remaining. The new issue would be for 10 years. There is a 8 percent call premium on the old issue. The underwriting cost on the new $11,000,000 issue is $410,000, and the underwriting cost on the old issue was $300,000. The company is in a 35 percent tax bracket, and it will use an 10 percent discount rate to analyze the refunding decision. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. a. Calculate the present value of total outflows. (Do not round Intermediate calculations and round your answer to 2 decimal places.) PV of total outflows $ 893,824.99 b. Calculate the present value of total inflows. (Do not round Intermediate calculations and round your answer to 2 decimal places.) PV of total outfiows c. Calculate the net present value. (Negative amount should be indicated by a minus sign. Do not round Intermediate calculations and round your answer to 2 decimal places.) Net present value
