Question
Suppose your company needs to raise $46 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond
Suppose your company needs to raise $46 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent and youre evaluating two issue alternatives: A semiannual coupon bond with a coupon rate of 8 percent and a zero coupon bond. Your companys tax rate is 22 percent. Assume a par value of $2,000.
How many of the zeroes would you need to issue to raise the $46 million?
In 20 years, what will your companys repayment on the face value of the bonds be if you issue the coupon bonds?
In 20 years, what will your companys repayment on the face value of the bonds be if you issue the zero bonds?
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