The City of West Hills issued $5,000,000 of 15 percent coupon, 20 year, annual payment, tax-exempt municipal bonds 15 years ago. The bonds had 5 years of call protection, but now West Hills can call the bonds if it chooses to do so. The call premium would be 5 percent of the face amount. New 5-year, 13 percent, annual payment bonds can be sold at par, but floatation costs on this issue would be 1 percent, or $50,000. What is the net present value of the refunding?

Answer rating: 100% (QA)

To calculate the net present value NPV of the refunding we need to compare the cash flows from the e... View the full answer