Question
Suppose your company needs to raise $53 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond
Suppose your company needs to raise $53 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 4.6 percent, and youre evaluating two issue alternatives: A semiannual coupon bond with a coupon rate of 4.6 percent and a zero coupon bond. Your companys tax rate is 24 percent. Both bonds will have a par value of $2,000. a-1. How many of the coupon bonds would you need to issue to raise the $53 million? a-2. How many of the zeroes would you need to issue? b-1. In 25 years, what will your companys repayment be if you issue the coupon bonds? b-2. What if you issue the zeroes? c. Calculate the aftertax cash flows for the first year for each bond.
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