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Category > Business & Finance Posted 07 Jun 2017 My Price 7.00

Suppose your company needs

Suppose your company needs to raise $35.5 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8.0 percent, and you%u2019re evaluating two issue alternatives: a 8.0 percent annual coupon bond and a zero coupon bond. Your company%u2019s tax rate is 35 percent.

 

Requirement 1:
(a)

How many of the coupon bonds would you need to issue to raise the $35.5 million? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations.Enter the whole number for your answer, not millions (e.g., 1,234,567).)

 

Number of coupon bonds  

 

(b)

How many of the zeroes would you need to issue? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

 

Number of zero coupon bonds  

 

Requirement 2:
(a)

In 20 years, what will your company%u2019s repayment be if you issue the coupon bonds? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

 

Coupon bonds repayment $

 

(b)

What if you issue the zeroes? (Do not include the dollar sign ($).Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to the nearest whole dollar amount (e.g., 32).)

 

Zero coupon bonds repayment $

 

Requirement 3:

Assume that the IRS amortization rules apply for the zero coupon bonds.
 

Calculate the firm%u2019s aftertax cash outflows for the first year under the two different scenarios. (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Input a cash outflow as a negative value and a cash inflow as a positive value. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567). Round your answers to 2 decimal places (e.g., 32.16).)

 

   
Coupon bond cash flow $
Zero coupon bond cash flow $

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Status NEW Posted 07 Jun 2017 07:06 AM My Price 7.00

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