Suppose your company needs to raise $41.3 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.3 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 6.3 percent and a zero coupon bond. The tax rate is 23 percent. Both bonds will have a par value of $1,000. a. How many of the coupon bonds would you need to issue to raise the $41.3 million? How many of the zeroes would you need to Issue? Note: Do not round Intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16. b. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zerbes? Note: Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios.. Note: Input a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89. a. Number of coupon bonds Number of zero coupon bonds - b. Coupon bond repayment Zero coupon bond repayment c. Coupon bond cash flow Zero coupon bond cash flow
Suppose your company needs to raise $41.3 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.3 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 6.3 percent and a zero coupon bond. The tax rate is 23 percent. Both bonds will have a par value of $1,000. a. How many of the coupon bonds would you need to issue to raise the $41.3 million? How many of the zeroes would you need to Issue? Note: Do not round Intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16. b. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zerbes? Note: Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year under the two different scenarios.. Note: Input a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89. a. Number of coupon bonds Number of zero coupon bonds - b. Coupon bond repayment Zero coupon bond repayment c. Coupon bond cash flow Zero coupon bond cash flow
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Suppose your company needs to raise $41.3 million and you want to issue 20-year bonds for this purpose. Assume the required return
on your bond issue will be 6.3 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of
6.3 percent and a zero coupon bond. The tax rate is 23 percent. Both bonds will have a par value of $1,000
a. How many of the coupon bonds would you need to issue to raise the $41.3 million? How many of the zeroes would you need to
Issue?
Note: Do not round intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your
zero coupon bond answer to 2 decimals, e.g., 32.16.
b. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zerpes?
Note: Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole
number, e.g., 1,234,567.
c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm's aftertax cash outflows for the first year
under the two different scenarios.
Note: Input a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations
and enter your answers in dollars, not millions, rounded to 2 decimal places, e.g., 1,234,567.89.
a. Number of coupon bonds
Number of zero coupon bonds
b. Coupon bond repayment
Zero coupon bond repayment
c. Coupon bond cash flow
Zero coupon bond cash flow
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education