Wiggan Ltd. is considering whether to repay its old bonds with a new bond issue. The old $40 million bonds carry a coupon rate of 10%, paid annually, and were issued 8 years ago with 30 years to maturity. It has a call premium of 12% above par value. Current long-term rates are 8% per annum and treasury bill rates are 4%. Underwriting costs on the old issue amounted to $300,000 however their underwriter has advised that there would be a 50% increase in their fee for the current issue. It is expected that there would be an overlap period of one month. The company is in the 35% tax bracket.

Required: Advise Wiggan Ltd. on whether they should refund the issue and why. (15 marks)