Mullet Technologies is considering whether or not to refund a $75 million, 12% coupon, 30-year bond issue that was sold 5 years ago. It is amortizing $5 millions of flotation costs on the 12% bonds over the issues 30-year life. Mullets investment banks have indicated that the company could sell a new 25-year issue at an interest rate of 10% in todays market. A call premium of 12% would be required to retire the old bonds, and flotation costs on the new issue would amount to $5 million. Mullets marginal tax rate is 40%.

1. What is the cash outlay at the time of the refunding?
2. What is the net change in the annual flotation cost tax savings?
3. What is the after-tax annual interest savings?
4. What is the bond refundings NPV? What is the decision?