The ABC Company currently has $50 million of

13 percent coupon bonds that pay interest

semi-annually. These bonds are due in 8 years

and can be called at a premium of 5 percent.

At present, the company can float a new iss

ue of similar bonds with a coupon rate of 10

percent. The company will have to incur issui

ng and underwriting expenses of $600,000.

ABC has a 40% tax rate. Should refinancing

take place? Show your calculations.