Coupon bond cash flow zero coupon bond cash flow

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Reference no: EM132002911

Suppose your company needs to raise $35.2 million and you want to issue 22-year bonds for this purpose. Assume the required return on your bond issue will be 7.7 percent, and you’re evaluating two issue alternatives: a 7.7 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. Both bonds would have a face value of $1,000.

How many of the zeroes would you need to issue?

In 22 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes?

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

Calculate the firm’s after tax cash outflows for the first year under the two different scenarios.

Coupon bond cash flow Zero coupon bond cash flow.

Reference no: EM132002911

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