If you are financial advisor, advice under what circumstances suggestion of CFO is feasible? Which method will you use to decide about the…

Under the following circumstances suggestion of CFO is feasible: Bonds should have been issued with call features as it gives them the right or choice to redeem bonds before their due date of maturity especially when market conditions are favourable to them.However, Call feature is not free of cost because companies are supposed to repay higher amount than the face value of bonds which is called 'Call Premium'.New bonds to be issued at lower interest rate. The Net Present Value (NPV) method is used to evaluate such types of Bond Refunding decisions. If the Present Value of Cash Inflows (in form of net cash saving) exceeds the Present Value of cash outflow (call premium, interest during transition period etc.) then existing bonds can be refunded and new bonds carrying lower coupon interest rate can be issued resulting in overall saving of cash outflows. To ensure the smooth functioning of the organisation, new bonds are generally issued before refunding old bonds. Yes, this process involves extra interest cost as new bonds are generally issued before refunding old bonds. This often results in interest payments on both categories of bonds during the overlapping period.