The Warren Electric Company is considering refunding its $150 million, 12 percent debt issue with a 10 percent, 20-year debt issue. The existing (old) issue also matures in 20 years and now is callable at 105 percent of par. The unamortized issuance cost on the old issue is $600,000, and the issuance cost of the new issue is 0.4 percent.

Both the new and old debt issues will be outstanding for 4 weeks, resulting in overlapping interest. Warren Electrics weightedcostofcapitalis10 percent and its marginal tax rate is 40 percent. The companys treasurerfeelsthat the decline in interest rates has bottomed out.

Determine the net present value of refunding the old bond issue.