Suppose your company needs to raise $10 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 9 percent, and youre evaluating two issue alternatives: a 9 percent annual coupon bond, and a zero coupon bond. Your companys tax rate is 35 percent.

a. How many of the coupon bonds would you need to issue to raise the $10 million? How

many of the zeroes would you need to issue?

b. In 20 years, what will your companys repayment be if you issue the coupon bonds?

What if you issue the zeroes?

c. Consider the firms after tax cash flow for the first year under the two scenarios. Why

would you want to ever issue zero coupon bonds?