Clinch River Power Is Considering Refunding a $150 Million 12

Clinch River Power is considering refunding a $150 million 12% coupon bond with a 10% coupon bond, 20-year bond. The current bond also matures in 20 years and is now callable at 110% of par. The unamortized flotation cost on the old issue is $540,000, and the flotation cost of the new issue is 0.925%. Clinch River estimates that there would be a 4-week period where both bonds would be outstanding. The company has a weighted cost of capital of 11% and a 40% marginal tax rate. Clinch River has decided to sell the refunding issue. What is their reasoning?

A) NPV is approximately $9.838 million
B) NPV is approximately $9.930 million
C) NPV is approximately $9.655 million
D) NPV is approximately $10.808 million

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free