Loose Cannon Co. Loose Cannon Co. Is Evaluating a New $75 Million Bond

Multiple Choice

Loose Cannon Co.
Loose Cannon Co. is evaluating a new $75 million bond issue, the proceeds of which would be used to call and retire its outstanding $75 million bonds. Details on both bond issues are presented below. The firm is in the 35% tax bracket.
Old Bonds The old issue sold at par, with a coupon rate of 11 percent. It was issued five years ago with a twenty year maturity. The issue had $350,000 in flotation costs and carries a call price of $1150.
New Bonds The new issue are expected to sell at par with an 8.5 percent coupon rate and a 15 year maturity. Flotation costs are forecast to be $500,000. Interest payments will overlap for 2 months while the old bonds are retired.
-Refer to Loose Cannon Co. What is the NPV of the refunding decision?

A) $3,654,164
B) $5,356,375
C) $1,224,292
D) $8,614,375