Suppose your company needs to raise $35 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you’re evaluating two issue alternatives: A 8 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 40 percent.
a-1. How many of the coupon bonds would you need to issue to raise the $35 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 20 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 $ ____________
Zero coupon bonds $ ______________