Problem:
Suppose your company needs to raise $36 million and you want to issue 25-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent, and you're evaluating two issue alternatives: A 7 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 30 percent.
Required:
Question 1: How many of the coupon bonds would you need to issue to raise the $36 million?
Question 2: How many of the zeroes would you need to issue?
Question 3: In 25 years, what will your company's repayment be if you issue the coupon bonds?
Question 4: In 25 years, what will your company's repayment be if you issue the zeroes?
Note: Provide support for your rationale.