1. You are the Chief Financial Officer of XYZ Corporation. Five years ago XYZ Corp. issued 20 year bonds, callable in 5 years at Par Value, with a 6.00% annual coupon. You are now trying to decide if you should call the bonds and refinance this debt by issuing new 15 year callable bonds. A lot has happened in 5 years: your firms capital structure has changed as it borrowed more money to finance growth, the firms financial ratings have changed, and the risk free interest rate has declined by 100 basis points. Given the current information below for XYZ Corp., should you call the bonds? Explain your answer.

Shareholders Equity = $5.5 Billion

Market Capitalization = $10.5 Billion

Market value of Debt = $4.5 Billion

Weighted Average Cost of Capital = 12.00%

Equity Cost of capital = 15.00%

Tax rate = 21%