## Answers

Current Annual coupons = 4,000,000 x 9% = 360,000

New annual coupon if bonds are refunded = 4,000,000 x 7% = 280,000

Annual saving = 80,000

Now in order to saving that, upfront cost include

Call premium = 5% x 4,000,000 = 200,000

Floating cost = 4,000,000 x 3% = 120,000

Let's calculate present value of annual saving using PV function

N = 5, PMT = 80,000, FV = 0, I/Y = 7%

=> Compute PV = $328,015.79

NPV = 328,015.79 - 120,000 - 200,000 = $8,015.79

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