Tom Fong Music Inc., has an outstanding bond callable at $1,340. The total value of the bond is $100 million. The company is considering issuing a new bond and using the proceeds to buy back the existing bond. The transaction cost of such refunding is $23,430,000. Suppose the tax rate is 30%. What is the condition for the existing callable bond to be refunded?

a.

the after-tax gain from the cost of debt saving is higher than the total after-tax cost of refunding

b.

the total after-tax cost of refunding is higher than the after-tax gain from the cost of debt saving

c.

the total after-tax cost of refunding equals the after-tax gain from the cost of debt saving