Boston Technologies is considering whether or not to refund a$100 million, 14% coupon, 30-year bond issue that was sold 5 yearsago. It is amortizing $6 million of flotation costs on the 14%bonds over the issue's 30-year life. Boston's investment banks haveindicated that the company could sell a new 25-year issue at aninterest rate of 9% in today's market. Neither they nor Boston'smanagement anticipate that interest rates will fall below 9% anytime soon, but there is a chance that rates will increase.
A call premium of 12% would be required to retire the old bonds,and flotation costs on the new issue would amount to $6 million.Boston's marginal federal-plus-state tax rate is 40%. The new bondswould be issued 1 month before the old bonds are called, with theproceeds being invested in short-term government securitiesreturning 6% annually during the interim period.
What is the bond refunding's NPV? Do not round intermediatecalculations. Round your answer to the nearest cent.
