What if you issue the zeroes

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Reference no: EM131059763

Suppose your company needs to raise $38 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives: A 8 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 40 percent.

a-1. How many of the coupon bonds would you need to issue to raise the $38 million? Number of coupon bonds 38000

a-2. How many of the zeroes would you need to issue? (Round your answer to 2 decimal places. (e.g., 32.16)) Number of zero coupon bonds 182438.78

b-1. In 20 years, what will your company’s repayment be if you issue the coupon bonds? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Coupon bonds repayment $ 39520000

b-2. What if you issue the zeroes? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Zeroes repayment $ 182438780

c. Calculate the aftertax cash flows for the first year for each bond. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Coupon bonds $ 1824000

Zero coupon bonds $ ?

Reference no: EM131059763

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