Question
Suppose your company needs to raise $61 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 $61 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 5.8 percent, and youre evaluating two issue alternatives: A semiannual coupon bond with a coupon rate of 5.8 percent and a zero coupon bond. Your companys tax rate is 22 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 $61 million? | ||||||||||||||||||||||
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.) | ||||||||||||||||||||||
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, e.g., 1,234,567.) | ||||||||||||||||||||||
b-2. | What if you issue the zeroes? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, e.g., 1,234,567.) | ||||||||||||||||||||||
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, e.g., 1,234,567.)
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started