Suppose your company needs to raise $38 million and you want toissue 20-year bonds for this purpose. Assume the required return onyour bond issue will be 8 percent, and youâre evaluating two issuealternatives: A semiannual coupon bond with a coupon rate of 8percent and a zero coupon bond. Your companyâs tax rate is 40percent. Both bonds will have a par value of $1,000.
b-1. In 20 years, what will your companyâs repayment be if you issuethe coupon bonds? (Do not round intermediate calculationsand enter your answer in dollars, not millions of dollars, i.e.1,234,567.)
Coupon bonds repayment $ b-2. What if you issue the zeroes? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, i.e. 1,234,567.)
Zeroes repayment $ c. Calculate the aftertax cash flows for the first year for eachbond. (Do not round intermediate calculations and enteryour answers in dollars, not millions of dollars, i.e.1,234,567.)
Coupon bonds $ Zerocoupon bonds $
Suppose your company needs to raise $38 million and you want toissue 20-year bonds for this purpose. Assume the required return onyour bond issue will be 8 percent, and youâre evaluating two issuealternatives: A semiannual coupon bond with a coupon rate of 8percent and a zero coupon bond. Your companyâs tax rate is 40percent. Both bonds will have a par value of $1,000.
| b-1. | In 20 years, what will your companyâs repayment be if you issuethe coupon bonds? (Do not round intermediate calculationsand enter your answer in dollars, not millions of dollars, i.e.1,234,567.) | |
| Coupon bonds repayment | $ | |
| b-2. | What if you issue the zeroes? (Do not round intermediatecalculations and enter your answer in dollars, not millions ofdollars, i.e. 1,234,567.) | |
| Zeroes repayment | $ | |
| c. | Calculate the aftertax cash flows for the first year for eachbond. (Do not round intermediate calculations and enteryour answers in dollars, not millions of dollars, i.e.1,234,567.) | |
| Coupon bonds | ||
| $ | ||
| Zerocoupon bonds | ||
| $ | ||
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Related questions
A 8.3 percent coupon bond with 16 years left to maturity ispriced to offer a 6.65 percent yield to maturity. You believe thatin one year, the yield to maturity will be 7.4 percent.
What would be the total return of the bond in dollars?(Do not round intermediate calculations and round yourfinal answer to 2 decimal places.) |
| Total return | $ |
What would be the total return of the bond in percentage?(Do not round intermediate calculations and round yourfinal answer to 2 decimal places.) |
| Total return | % |
