In a bond refunding analysis, the principal benefit, or cash inflow, is the present value of the ____.
A) pre-tax interest savings over the life of the issue
B) after-tax flotation cost savings
C) after-tax interest savings over the life of the issue
D) after-tax call premium

Question

Quizplus · Accepted Answer

The principal benefit, or cash inflow, in a bond refunding analysis is the after-tax interest savings over the life of the issue. This is because the purpose of a bond refunding is to replace existing bonds with new ones that have a lower interest rate, resulting in savings on interest payments over time. It's important to use the after-tax interest savings because the interest on the new bonds will still be taxable income.

In a Bond Refunding Analysis, the Principal Benefit, or Cash