CORP FIN (LL)+CONNECT+PROCTORIO+180
CORP FIN (LL)+CONNECT+PROCTORIO+180
12th Edition
ISBN: 9781266120343
Author: Ross
Publisher: MCG
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Chapter 8, Problem 7MC
Summary Introduction

Case summary: Larissa has chosen to increase the activities of East Coast Yachts as a result of Dan's EFN research. To finance new building, she has requested Dan to help sell $50 million in brand-new 20-year bonds with the help of an underwriter. Dan has started talking with Kendahl Shoemaker from Crowe & Mallard about the bond features East Coast Yachts should take into account and the expected coupon rate for the issue. Dan is aware of bond features, but he is unsure of the advantages and disadvantages of some of them. As a result, he is unsure of how each feature will affect the bond issue's coupon rate.

Characters in the case: Dan, Larissa, Kendahl

Adequate information: Dan is also debating whether to issue zero-coupon bonds or bonds that bear coupons. Both bond issues will have a YTM of 7.5%. The coupon rate on the bond with coupons would be 6.5%. The corporation pays a tax rate of 21%.

To determine: Would you recommend a zero-coupon issue or a regular coupon issue and would you recommend an ordinary call feature or a make-whole call feature?

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Chapter 8 Solutions

CORP FIN (LL)+CONNECT+PROCTORIO+180

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