Q. 1) Dan is also thinking whether to issue coupon bearing bonds or zero coupon bonds. YTM on either bond issue will be 6.5%. Coupon bond would have a 6.5% coupon rate. The company's tax rate is 35%.
2) How many of coupon bonds should East Coast Yachts issue to increase the $40 million? How many of zeroes must it issue?
3) Sultan Services has= 1.2 million shares outstanding. It expects earnings at the ending of year of 5.6 million. Sultan pays out 60% of its earnings in total-40% paid out as dividends also 20 % used to repurchase shares. If Sultan's earnings are expected to increase up 7% each year, these payout rates don't change, also Sultan's equity cost of capital is 9%, what is Sultan's share price.