Question
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money.
Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 20-year zero coupon bonds to raise the money. The required return on the bonds will be 8 percent. Assume a par value of $1,000 and semiannual compounding. |
a. | What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
Issue price | $ |
b. | Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
Interest deduction | |
First year | $ |
Last year | $ |
c. | Using the straight-line method, what interest deduction can the company take on these bonds in the first year? In the last year?. (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
Interest deduction | |
First year | $ |
Last year | $ |
d. | Based on your answers in (b) and (c), which interest deduction method would the company prefer? | ||||
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