Suppose your company needs to raise $36.5 million and you want to issue 20-year

Question

Suppose your company needs to raise $36.5 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 9.0 percent, and you’re evaluating two issue alternatives: a 9.0 percent annual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.

How many of the coupon bonds would you need to issue to raise the $36.5 million? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations.Enter the whole number for your answer, not millions (e.g., 1,234,567).)

How many of the zeroes would you need to issue? (Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to 2 decimal places (e.g., 32.16).)

In 20 years, what will your company’s repayment be if you issue the coupon bonds? (Do not include the dollar sign ($). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

What if you issue the zeroes? (Do not include the dollar sign ($).Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Enter your answer in dollars, not millions of dollars (e.g., 1,234,567). Round your answer to the nearest whole dollar amount (e.g., 32).)

Assume that the IRS amortization rules apply for the zero coupon bonds.

Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios. (Do not include the dollar signs ($). Enter rounded answers as directed, but do not use the rounded numbers in intermediate calculations. Input a cash outflow as a negative value and a cash inflow as a positive value. Enter your answers in dollars, not millions of dollars (e.g., 1,234,567). Round your answers to 2 decimal places (e.g., 32.16).)

Requirement 1:

Explanation / Answer

Ans 1

Workings

Sl No Details Amount 1 Issue Proceeds     365,00,000.00 Par Value (Assumed)                1,000.00 Since the RRR and coupon rate , par value would be realised from issue No of coupon bonds to be issued             36,500.00 2 Total Cash flow to realized at the end of maturity 1022,00,000.00 Par Value                1,000.00 No of zero's to be issued          1,02,200.00

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.