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Providence Industries has an outstanding debenture of $25 million that was issued when flotation costs could...

Providence Industries has an outstanding debenture of $25 million that was issued when flotation costs could be expensed immediately. It carries a coupon rate of 10 percent and has 15 years to maturity. Currently, similar risk bonds are yielding 9 percent over a 15-year period, and Providence is wondering if a refunding would be economically sound. The existing debenture has a call premium of 5 percent at present. It is estimated that a new issue would require underwriting costs of $470,000 and other costs of $80,000. No overlap period would be required. Providence Industries has a tax rate of 25 percent. Its cost of capital is 16 percent. a-1. Compute the discount rate. (Round the final answer to 2 decimal places.) Discount rate % a-2. Calculate the present value of total outflows. (Round "PV Factor" to 4 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) Total outflows $ a-3. Calculate the present value of total inflows. (Round "PV Factor" to 4 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) Total inflows $ a-4. Calculate the net present value. (Round "PV Factor" to 4 decimal places. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) Net present value $ a-5. Should Providence Industries refund the old issue? Yes No

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