Suppose your company needs to raise $20 million and you want to issue 25 year bonds for this purpose. Assume the required return on your bond issue will be 5 percent and youre evaluating two-issue alternatives: a 5 percent annual coupon bond and a zero-coupon bond. Your companys tax rate is 40 percent. Required: (1) (8 marks) Compare the two alternatives, considering: a) the number of bonds that would need to be issued b) repayment obligation c) aftertax annual cash flows for the first year

Annual Coupon Bond	Zero-Coupon Bond

(2) (2 marks) Under what conditions would you choose a zero-coupon bond over an annual coupon bond?