Company ABC is considering refunding a $40,000,000, annual payment, 12% coupon, 30 year bond issue that was issued 5 years ago. It has been amortizing $4 million of floatation costs on these bonds over their 30-year life. The company could sell a new issue of 20-year bonds at an annual interest rate of 10.50% in today's market. A call premium of 10% would be required to retire the old bonds and floatation costs on the new issue would amount to $4 million. ABC's marginal tax rate is 28%. The new bonds would be issued when the olds bonds are called.
What will the after-tax annual interest savings for ABC be if the refunding takes place?