Zero Coupon Bonds [ LO2] Suppose your company needs to raise $65 million and you...
80.2K
Verified Solution
Link Copied!
Question
Accounting
Zero Coupon Bonds [ LO2] Suppose your company needs to raise $65 million and you want to issue 20 -year bonds for this purpose. Assume the required return on your bond issue will be 4.9 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 4.9 percent, and a zero coupon bond. The tax rate is 21 percent. Both bonds will have a par value of $1,000. a. How many of the coupon bonds would you need to issue to raise the $65 million? How many of the zeroes would you need to issue? b. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeroes? c. Based on your answers in parts (a) and (b), why would you ever want to issue the zeroes? To answer, calculate the firm's aftertax cash flows for the first year under the two different scenarios. Assume the IRS amortization rules apply for the zero coupon bonds
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
