Exxon Oil Corp (EOC) has leveraged itself by borrowing $2/share for every $1/share in shareholders equity. EOCs assets minus its liabilities = $1,000,000. Of the total debt, half is payable at a variable rate (currently at 5%) that is tied to the Fed Funds rate (FF). The formula for the rate is simply FF x 2. The other half of the debt is financed through a long-term bond issue with a fixed 8% coupon and full principal due at maturity. Fearing a rise in rates, EOC pays off its adjustable rate debt and then refinances that same amount on the same terms as its other fixed rate debt. FF then drops by half. How much would EOC save over the coming year if it didnt refinance its debt.

• A. $50,000
• B. $55,000
• C. $102,000
• D. $80,000