Trinjam Limited wants to expand operations of its Port of Spain Business to San Fernando. To achieve this desired objective, Trinjam Limited must raise $75 million dollars and is seeking to issue a 25-year bond for this purpose.

Assume the required return on your bond issue will be 7 percent. You’re evaluating two possible financing scenarios;

• ·  An 8.50 percent monthly coupon bond
• ·  a Zero coupon bond.

Your company’s tax rate is 25 percent.

a) How many of the coupon bonds will Trinjam need to issue to raise the $75 million dollars? How many Zero coupon bonds would they need to issue?

b) In 30 years, what will Trinjam’s Limited repayment be, if they issue the coupon bonds? What if they issue the Zero Coupon Bond, what will be repayment be?

c) Based on your answers in (a) and (b), why would Trinjam ever want to issue the Zero Coupon Bond?