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Suppose your company needs to raise $15 million and you want to issue 35-year bonds for this purpose. Assume the required return on your bond issue will be 5 percent, and you're evaluating two-issue alternatives: An 5 percent semiannual coupon bond and a zero-coupon bond. Your company's tax rate is 35 percent.
a. How many coupon bonds would you need to issue to raise the $15 million? How many of the zeros would you need to issue?
A number of coupon bonds to sell:
A number of zero-coupon bonds to sell:
b. In 35 years, what will be the last cash outflow associated with the coupon bonds?
Coupon bonds repayment:
Zero-coupon bonds repayment:
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