Question
Suppose your company needs to raise $40 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond
Suppose your company needs to raise $40 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and youre evaluating two issue alternatives: A semiannual coupon bond with a coupon rate of 6 percent and a zero coupon bond. Your companys tax rate is 35 percent. Both bonds will have a par value of $1,000. a-1. How many of the coupon bonds would you need to issue to raise the $40 million? Number of coupon bonds a-2. How many of the zeroes would you need to issue? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Number of zero coupon bonds b-1. In 30 years, what will your companys repayment be if you issue the coupon bonds? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Coupon bonds repayment $ b-2. What if you issue the zeroes? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Zeroes repayment $ c. Calculate the aftertax cash flows for the first year for each bond. (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, i.e. 1,234,567.) Coupon bonds $ Zero coupon bonds $
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