RG Unlimited has a $500 million bond obligation outstanding. The bond has 10 years remaining and pays 6.5% interest. As RGs credit rating has improved over the last few years if they were to issue a similar bond today it would only pay 5% interest. The old bonds have a call premium of 7%. Any new bond issue would have underwriting costs of $3,500,000. RG has a marginal tax rate of 30% and expects a one month overlap period if they were to reissue the bonds. Any extra cash can be invested on a short term basis earning 3%.

Should RG refund their existing $500,000,000 bond with new debt?