Suppose your company needs to raise 10 million to construct


Suppose your company needs to raise $10 million to construct a new office building at an expanded manufacturing site. As CFO, you plan to raise the money by selling 30-year $1,000 par value bonds with a coupon rate of 6% which is the Yield in Maturity on your firm’s outstanding bonds. Between the time that your bond agreement is finalized and the bonds are sold to investors, inflation spikes and adds 2% to the required return on your bonds. a. Prior to the rate increase, how many bonds would your company need to issue to fund the capital investment under consideration? b. After the rate increase, how many bonds would your firm need to issue to fund the capital investment under consideration? c. Suppose your firm could issue 10-year bonds instead of the 30-year bonds. How many of the 10-year bonds would your firm need to sell?

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Financial Management: Suppose your company needs to raise 10 million to construct
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