Guzman Enterprises is considering a refunding operation to replace $30 million worth of bonds that it issued 10 years ago. The firm is in the 25% tax bracket. The old and new bonds are described below: Outstanding bonds: The outstanding bonds have a $1,000 par value and a 7% coupon interest rate. They were issued 10 years ago with 30 years original maturity. They were initially sold at par and the firm incurred $400,000 in flotation costs. The bonds are callable at an 8.5% premium. New bonds: The new bonds would have a $1,000 par value, a 4% coupon rate, and a 20-year maturity. They could be sold at par value but would incur flotation costs of $600,000. The firm does not expect any overlapping interest. What is the capital outlay (CFO) required to undertake this refunding operation? $2,779,167 $3,720,833 $2,445,833 $2,512,500 Page 21 of 35