Exercise test.2

•Dai Hai Company. has a $10 million bond obligation outstanding which it is considering refunding. The bonds were issued at 10% and the interest rates on similar bonds have declined to 8%. The bonds have six years of their 15-year maturity remaining.
•The new bond will have a 6-year maturity. Company will pay a call premium of 6% and will incur new underwriting costs of $300,000 immediately.
•There is no underwriting cost consideration on the old bond. The company is in a 35% tax.
To analyze the refunding decision, use a 13% discount rate.