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 semi-annual coupon bond and a zero coupon bond. Your company’s tax rate is 30 percent.
How many of the coupon bonds would you need to issue to raise the $36 million?
How many of the zeroes would you need to issue?
In 25 years, what will your company’s repayment be if you issue the coupon bonds?
In 25 years, what will your company's repayment be if you issue the zeroes?