Assume Face Value is $1000 10. 000 Corp. is considering raising capital by issuing...
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Assume Face Value is $1000
10. 000 Corp. is considering raising capital by issuing new debt. However, the CFO is undecided whether to issue coupon-bearing bonds or zero coupon bonds. The YTM on either bond issue is 5.5 percent according to comparable outstanding bonds in the market. The bonds will have a maturity of 30 years. The company's tax rate is 35 percent. a. How many coupon bonds must OOO sell to raise $45 million? How many b. In 30 years, what will be the principal repayment on the coupon bonds? On c. If the bonds are issued with a make-whole provision that pays the Treasury zeroes? the zeroes? rate plus .40 percent, what is the call price of each coupon bond in seven years if the Treasury rate is 4.8 percent? What if it is 6.2 percent? What would the after-tax interest cash payment be for the coupon bond? d
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