Suppose your company needs to raise $16 million and you want to issue 22-year bo
ID: 2772972 • Letter: S
Question
Suppose your company needs to raise $16 million and you want to issue 22-year bonds for this purpose. Assume the required return on your bond issue will be 5 percent, and you're evaluating two issue alternatives: a 5 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 31 percent.
You will need to issue _____ of the zeroes to raise the $16 million. (Round your answers to the nearest whole number.
In 22 years, your company's repayment will be $_____ if you issue the coupon bonds.
If you issue the zeroes, your company's repayment will be $_______
a. You will need to issue _____ of the coupon bonds to raise the $16 million.You will need to issue _____ of the zeroes to raise the $16 million. (Round your answers to the nearest whole number.
b.In 22 years, your company's repayment will be $_____ if you issue the coupon bonds.
If you issue the zeroes, your company's repayment will be $_______
Explanation / Answer
a. You will need to issue _____ of the coupon bonds to raise the $16 million.
No of Coupon Bond to be issued = 16,000,000/1000 = 16000
Answer
16000
You will need to issue _____ of the zeroes to raise the $16 million.(Round your answers to the nearest whole number.
Present Value of Zero Coupon Bond = 1000/(1+5%)^22 = $ 341.85
No of Zeroes Coupon Bond = 16000000/341.85
No of Zeroes Coupon Bond = 46804
Answer
46,804
b.In 22 years, your company's repayment will be $_____ if you issue the coupon bonds.
Your company's repayment will be = $ 16,000,000
If you issue the zeroes, your company's repayment will be $_______
Your company's repayment will be = $ 46,804,000
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