Question
Suppose your company needs to raise $50 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 $50 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 your 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.
a) How many of the coupon bonds would you need to issue to raise the $50 Million? How many of zeroes would you need to issue?
b) In 20 Years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeros?
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