Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.
a-1. How many of the coupon bonds would you need to issue to raise the $45 million Number of coupon bonds.
a-2. How many of the zeroes would you need to issue? (Round your answer to 2 decimal places. (e.g., 32.16)) Number of zero coupon bonds.
b-1. In 30 years, what will your company’s repayment be if you issue the coupon bonds? (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? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.) Zeroes repayment $
c. Calculate the aftertax cash flows for the first year for each bond. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)
Coupon bonds are Inflow/Outflow and $
Zero coupon bonds are Inflow/Outflow and $