Refunding Net Present Value
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Refunding Net Present Value
The city of Los Angeles issued $1,000,000 of 15 percent coupon, 20-year, annual payment, tax-exempt muni bonds 15 years ago. The bonds had a 10 year call protection, but now Gainesville can call the bond if it chooses to do so. The call premium would be 5 percent of the face amount. New 5-year, 13 percent, annual payment bonds can be sold at par, but flotation cost on this issue would be 1 percent, or $10,000. What is the net present value of the refunding?
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Refunding Net Present Value
The city of Los Angeles issued $1,000,000 of 15 percent coupon, 20-year, annual payment, tax-exempt muni bonds 15 years ago. The bonds had a 10 year call protection, but now Gainesville can call the bond if it chooses to do so. The call premium would be 5 percent of the face amount. New 5-year, 13 percent, annual payment bonds can be sold at par, but flotation cost on this issue would be 1 percent, or $10,000. What is the net present value of the refunding?
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