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Is the manager statement right

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Question - A company would like to issue a ten-year bond in order to raise £1million to meet its financing needs. The market demands a 10% rate for ten-year bonds issued by firms with similar risk. The manager is considering whether to issue a zero-coupon bond with a ten-year maturity or a ten-year bond paying an annual coupon of 10%. He believes that: "Issuing a zero-coupon bond is attractive because we do not have to pay (annual) coupons, just the principal upon maturity of the bond. The choice of bond will not affect our net income."

Assume that the company uses the amortised cost method to account for its bonds and ignore any tax effects. Is the manager's statement right? Explain your answer.

Reference no: EM133051858

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