ABC WasteABC Waste (ABCW) Is Considering Refunding a $50,000,000, Annual

question 37

Multiple Choice

ABC WasteABC Waste (ABCW) 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 8.4% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. ABCW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.
-Refer to Scenario: ABC Waste.What is the NPV if ABCW refunds its bonds today?

• A)$1,746,987
• B)$1,838,933
• C)$1,935,719
• D)$2,037,599

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Definitions:

Feelings Toward

Emotional responses or attitudes an individual has about a particular thing or situation.

Self-determination Theory

A psychological framework suggesting people are motivated to grow and change by three innate and universal needs: competence, autonomy, and relatedness.

Particular Needs

Specific requirements or necessities that individuals or groups have, which can vary greatly depending on personal circumstances, preferences, or conditions.

Belongingness Needs

are a person's inherent need to feel connected, valued, and a part of a group or social circle, reflecting a fundamental human motivation.