Question
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose with a par value amount of $1,000.
Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose with a par value amount of $1,000. Assume the required return on your bond issue will be 6%, and youre evaluating two issue alternatives: a 6% annual coupon bond and a zero-coupon bond. Your companys tax rate is 35%.
Calculate Zeroes repayment and cash flow for zeroes.
b-1. In 30 years, what will your companys repayment be if you issue the coupon bonds? (Enter the answer in dollars. Omit $ sign in your response.)
Coupon bonds repayment $ 47700000 Correct.
b-2. What if you issue the zeroes? (Enter the answer in dollars. Round the intermediate calculations and the final answer to 2 decimal places. Omit $ sign in your response.)
Zeroes repayment $ ???
Calculate the firms aftertax cash flows for the first year under the two different scenarios. (Round the intermediate calculations and the final answers to 2 decimal places. Omit $ sign in your response.)
Cash flow of the coupon bonds | $ 1755000 Correct. | Cash outflow Correct |
Cash flow for zeroes | $ ??? | Cash inflow Correct |
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