Which of the following criteria should be established for determining when to execute a refunding?

The determination of when to execute a refunding is best guided by the net present value (NPV) savings amount, expressed in either percentage or dollar amount. This criterion is essential because it quantifies the financial benefits expected from refunding existing bonds. A successful refunding should ideally yield a positive NPV, indicating that the present value of the anticipated savings from lower interest payments outweighs the costs associated with the refunding process.

Focusing on NPV allows issuers to make comparisons of potential savings against the costs and risks of issuing new bonds. It provides a clear metric to assess the effectiveness of the refunding strategy, helping decision-makers determine if the action is financially worthwhile based on concrete numbers.

While potential bond rating improvements, economic forecasts, and governmental approvals may influence aspects of the refunding decision, they do not serve as definitive criteria. Ratings impact market perceptions, forecasts inform strategic planning, and approvals may be necessary but do not directly relate to the quantifiable benefits that NPV savings present in evaluating refunding opportunities. Thus, establishing NPV savings as a criterion ensures a focus on the ultimate financial impact of the refunding action.