Problem:
The Bowman Corporation has a $25 million bond obligation outstanding, which it is considering refunding. Though the bonds were initially issued at 7 percent, the interest rates on similar issues have declined to 5.5 percent. The bonds were originally issued for 25 years and have 20 years remaining. The new issue would be for 20 years. There is an 9 percent call premium on the old issue. The underwriting cost on the new $25,000,000 issue is $600,000, and the underwriting cost on the old issue was $450,000. The company is in a 35 percent tax bracket, and it will use a 7 percent discount rate (rounded after-tax cost of debt) to analyze the refunding decision. Use Appendix D.
Required:
Question 1: Calculate the present value of total outflows.
Question 2: Calculate the present value of total inflows.
Question 3: Calculate the net present value.
Note: Please show the work not just the answer.