Chapter 5 Financing East Coast Yachts Expansion Plans with a Bond Issue Input area: Years to maturity Required return Amount needed Face value $$306.20%45,000,0001,000 Coupon rate Tax rate 6.20% Year bond is called Spread above Treasury Treasury rate at call Treasury rate at call 21% 7 0.40% 4.80% 6.70% Output area: 2) Price of coupon bond Coupon bonds needed Price of zero coupon bond Zero bonds needed 3) Repayment of coupon bonds Repayment of zeroes 4) Year 1 interest payments: Pretax coupon payment Aftertax coupon payment Value of zero in one year Zero coupon growth Zero coupon bond During the life of a bond, the zero generates cash inflows to the firm in the form of the interest tax shield of debt. 5) Make whole price Make whole price