Taylor Corporation is contemplating issuing bonds to raise cash to finance an expansion. Before issuing the debt, the controller of the company wants to prepare an analysis of the cash flows and the interest expense associated with the issuance. Taylor Corporation is considering issuing one hundred $1,000 bonds on June 30, 1997, that mature on June 30, 2001. The bonds will have a stated annual interest rate of 6 percent, and interest is to be paid semiannually on December 31 and June 30. The bonds will have an effective interest rate of 10 percent. REQUIRED:

a. Compute the amounts that would complete the following table with respect to the bond issuance being considered by Taylor. Date Interest Cash Unamortized Balance Sheet Expense Payment Discount Value 6/30/97 12/31/97 6/30/98 12/31/98 6/30/99 12/31/99 6/30/2000 12/31/2000 6/30/2001

b. Find the difference between the total cash inflow from issuing the bonds and the total cash outflows from interest and principal payments.

c. Recognizing that cash interest payments are tax deductible and assuming a tax rate of 34 percent, recompute the difference you found in (b).

d. Repeat (c), but now consider the time value of money by using the effective rate of these bonds to compute the present value of the net future cash outflows due to interest and prin¬ cipal payments.