Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Total companys assets on 31 December 2020 = 6,281,481 Assume that your company financed its activities by issuing a corporate bond with a total value

Total companys assets on 31 December 2020 = 6,281,481 Assume that your company financed its activities by issuing a corporate bond with a total value is 15% of the total companys assets on 31 December 2020 and you want to issue 10-year bonds for this purpose. Suppose that the required return on your bond issue will be 9%, and you are evaluating 2 issue alternatives: a semiannual coupon bond with a coupon rate of 9% and a zero-coupon bond, your companys tax rate is 20%, both bonds will have a par value of VND 100,000.

a)How many coupon bonds would you need to issue to raise the capital needed?

b)How many zero-coupon bonds would you need to issue?

c)In the 10 years, what will your companys repayment be if you issue the coupon bonds? What if you issue the zeroes?

d)Based on your answer in the a), b) and c), why would you ever want to issue the zeroes? To answer, calculate the firms after-tax cash outflows for the first year under the two different scenarios. Assume the IRS amortization rules apply for the zero-coupon bonds

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets Instruments And Institutions

Authors: Anthony M. Santomero, David Babbel

2nd Edition

0072358688, 9780072358681

More Books

Students also viewed these Finance questions

Question

What are changeable data?

Answered: 1 week ago

Question

What do you think the natural cause of your problem is?

Answered: 1 week ago