ABC WasteABC Waste (ABCW) Is Considering Refunding a $50,000,000, Annual

Multiple Choice

ABC WasteABC Waste (ABCW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 8.4% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. ABCW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.
-Refer to Scenario: ABC Waste.The amortization of flotation costs reduces taxes and thus provides an annual cash flow.What will be the net increase or decrease in the annual flotation cost tax savings if refunding takes place?

A) $6,480
B) $7,200
C) $8,000
D) $8,800