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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
25.       Interest on Zeroes   Pangaea Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds to raise the money. The required return on the bonds will be 7 percent.
a.  What will these bonds sell for at issuance?
b.  Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year?
c.   Repeat part (b) using the straight-line method for the interest deduction.
d.  Based on your answers in (b) and (c), which interest deduction method would Pangaea Corporation prefer? Why?
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