Suppose your company needs to raise $35.1 million and you want to issue 21-year bonds for this purpose. Assume the required return on your bond issue will be 7.6 percent, and youre evaluating two issue alternatives: a 7.6 percent semiannual coupon bond and a zero coupon bond. Your companys tax rate is 35 percent.

Requirement 1:

(a) How many of the coupon bonds would you need to issue to raise the $35.1 million?

(b) How many of the zeroes would you need to issue?

Requirement 2:

(a) In 21 years, what will your company's repayment be if you issue the coupon bonds?

(b) What if you issue the zeroes?

Requirement 3:

(a) Assume that the IRS amitorization rules apply for the zero coupon bonds.

Calculate the firm's aftertax cash outflows for the first year under the two different scenarios.

Coupon bond cash flow:

Zero coupon bond cash flow: