Suppose your company needs to raise $43 million and you want to issue 30-year bo

Question

Suppose your company needs to raise $43 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.

In 30 years, what will your company’s repayment be if you issue the coupon bonds? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

What if you issue the zeroes? (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Calculate the aftertax cash flows for the first year for each bond. (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

Suppose your company needs to raise $43 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.

Explanation / Answer

let face value of bond=100

Bond Price=30* PVF of (3%, 60 years)+100* (PVF of 3%, 60th Year)

   =100

No of coupon required to be issue= 43,000,000/100 =430,000

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