Clinch River Power Is Considering Refunding a $150 Million 12

Multiple Choice

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.Should Clinch River sell the refunding issue?

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