Suppose your company needs to raise $67 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 4.6 percent, and you’re evaluating two issue alternatives: A semiannual coupon bond with a coupon rate of 4.6 percent and a zero coupon bond. Your company’s tax rate is 23 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 $67 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 25 years, what will your company’s 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.) |
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Suppose your company needs to raise $67 million and you want to issue 25-year bonds for...
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