Cutech Issued a $150 Million of a 20-Year, 10

Cutech issued a $150 million of a 20-year, 10.5% debt 5 years ago.Since then, Cutech's financial conditions have improved and management believes that they could refund the old issue with a new 15-year, 7.5% issue.The old debt is now callable at 104 percent of par and issuance costs on the new issue would be 0.6 percent.The unamortized issuance costs on the old issue are $675,000.If Cutech calls the old issue and refunds it, both issues would be outstanding for a two-week period.If the company's marginal tax rate is 40%, should Cutech refund the old issue?

A) Yes, NPV = $43,645,599
B) Yes, NPV = $43,798,975
C) Yes, NPV = $44,364,538
D) No, NPV is negative

Correct Answer:

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