Dairy Corp.has a $10 million bond obligation outstanding which it is considering refunding.The bonds were issued at 12% and the interest rates on similar bonds have declined to 10%.The bonds have 12 years of their 20-year maturity remaining.Dairy will pay a call premium of 6% and will incur underwriting costs of $400,000 immediately.There is no underwriting cost consideration on the old bond.The company is in a 40% tax bracket.There is no overlap interest period.Should the old issue be refunded?

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The Answer of Dairy Corp.has a $10 million bond obligation outstanding which it is considering refunding.The bonds were issued at 12% and the interest rates on similar bonds have declined to 10%.The bonds have 12 years of their 20-year maturity remaining.Dairy will pay a call premium of 6% and will incur underwriting costs of $400,000 immediately.There is no underwriting cost consideration on the old bond.The company is in a 40% tax bracket.There is no overlap interest period.Should the old issue be refunded?