Dairy Corp

Dairy Corp. has a $20 million bond obligation outstanding and a coupon rate of 8%. Dairy Corp. has the ability to buy back the debt at 7% above par and issue new debt at 6.5%, so it is considering refunding this bond. Assume the underwriting cost for the old issue was $100,000 and the new issue is $200,000, with a tax rate of 40%. What is the net cost of call premium?

A) $1,300,000
B) $840,000
C) $560,000
D) $1,040,000