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What is your after tax return for each of these bonds

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Question - Suppose your company needs to raise $45 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 7.5%, and you're evaluating two issue alternatives: a 7.5% annual coupon bond and a zero coupon bond. Your company's tax rate is 35%.

A. Your marginal tax rate is 30% and you are offered a corporate bond paying 6% or a municipal bond paying 4.3%, what is your after tax return for each of these bonds and which would be the better choice?

B. At what tax rate would your after tax return be the same for both bond.

Reference no: EM132188584

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