Suppose Vermont Electronics Company is thinking about relocating its plant to Mexico, where labor costs are lower. In the hope that it can stay in Vermont, the company has submitted an application to the state of Vermont to issue $2 million in five-year, tax-exempt industrial bonds. The coupon rate on industrial revenue bonds in Vermont is currently 5 percent. This is an attractive rate because the normal cost of debt capital for Vermont Electronics Company is 10 percent. The firm will pay annual interest of $100,000 (= $2 million × .05) , rather than annual interest of $200,000 (= $2 million × .10). What is the NPV of this potential financing transaction?

If the application is accepted and the industrial revenue bonds are issued by the Vermont Electronics Company, the NPV (ignoring corporate taxes) is: