New York Waste (NYW) Is Considering Refunding a $50,000,000, Annual

question 21

Multiple Choice

New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.
-What will the after-tax annual interest savings for NYW be if the refunding takes place?

• A) $664,050
• B) $699,000
• C) $768,900
• D) $845,790
• E) $930,369

---

Definitions:

Variability

The degree by which data points in a statistical distribution or dataset differ from each other and from the mean value.

Confidence

A measure of the reliability or certainty in statistical results, often expressed as a confidence interval or level.

Aptitude Tests

Assessments designed to measure a person's ability to acquire skills or knowledge, often used in educational and professional settings.

Population Means

The average of all the values in a population, representing the central tendency of the population data.