Why would a corporation consider bond refunding?

Question

Quizplus · Accepted Answer

The Answer is Bond refunding occurs when a company exercises its option to redeem a callable issue and sells a lower-cost issue to take its place. The decision to refund is based on capital budgeting analysis. If the present value of the after-tax interest savings over the life of the issue exceeds the cash outflow at the time of refunding, principally consisting of the call premium and flotation costs, then the corporation generally decides in favor of refunding. Bond refunding becomes important when interest rates decline substantially from earlier levels.

Why Would a Corporation Consider Bond Refunding