What discount rate is used in the net present value of the refunding decision?

Question

Quizplus · Accepted Answer

The discount rate used in the net present value of the refunding decision should be the after-tax cost of new debt. This is because the savings from refunding the existing debt will be used to pay off the new debt, which will have an after-tax cost. Therefore, it is important to consider the after-tax cost of new debt in order to accurately determine the net present value of the refinancing decision.

What Discount Rate Is Used in the Net Present Value