In a bond refunding analysis, the net investment calculation includes
A) aftertax call premium
B) flotation cost of new debt
C) overlapping interest
D) all of the above

Question

Quizplus · Accepted Answer

The net investment calculation in a bond refunding analysis includes all of the given options: aftertax call premium, flotation cost of new debt, and overlapping interest. The aftertax call premium is the cost of calling existing bonds, which must be subtracted from the proceeds of issuing new bonds. The flotation cost of new debt represents the costs associated with issuing new bonds, such as legal and underwriting fees. Finally, overlapping interest refers to the interest paid on the old bonds between the date of refunding and their call date. All of these factors must be considered to determine the net investment of a bond refunding.

In a Bond Refunding Analysis, the Net Investment Calculation Includes