1) The CFO is considering issuing 150,000 long-term debt bonds consisting of quarterly zero coupon bonds with an initial price of $625 and a three year term.

2) Current long-term debt consists of 100,000 semi-annual payment corporate bonds with a coupon rate of 12%. These bonds mature in 15 years. Currently, these bonds have a bond price of $910.

3) TCLs perpetual preferred stock has a current yield of 11.86% and pays a quarterly dividend of $1.75.

5) Beta for XYZ CO, as reported by security analysts, is 1.2; and return on the NYSE is expected to be 14%. The return on the NYSE last year was 12%.

U.S. Treasury Bill 1 4.2%

U.S. Treasury Note 1 4.8%

U.S. Treasury Bond 1 5.1%

6) The treasurer has also provided you with the economic forecast for the upcoming year.

State of Economy Probability of State occurring (%) Return in state (%)

Growth Period 29% 24%

Average Period 49% 12%

Recession Period 22% -6%