The CFO of Gulf Shores Transportation Limited (GST Ltd) has commissioned UTK Investment Bank to conduct an analysis on whether GST should refund its existing bonds with a size of $40 million The bonds were issued 5 years ago with an original maturity of 15 years and annual coupon rate of 11 percent At the time of issue, the underwriting cost was $4 million For tax purposes, this underwriting cost is being amortized on a straightline basis over the 15 year original life of the bonds The issues are currently callable at a premium of 11 percent Coupled with the fact that the market interest rates on new 10 year bonds of the same quality have dropped to 9 percent, GST Ltd is anxious to determine how much the company would save if the old issue could be refunded at the new rate UTK Investment Bank has assured GST that the underwriting cost of the new issue will be $4 million This amount, which will be paid upfront, will be amortized on a straightline basis over the life of the new bonds for tax purposes The companys tax rate is 25 As an analyst at UTK Investment Bank looking after this case.

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What recommendation would you make to the CFO of GST Ltd Should GST call the existing $40 million, 11 bonds, and refund at the new lower interest rate of 9 percent?  Provide your analyses with detailed calculations.