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Lapatulllka [165]
3 years ago
12

Suppose your company needs to raise $19 million and you want to issue 25-year bonds for this purpose. Assume the required return

on your bond issue will be 10 percent, and you're evaluating two issue alternatives: a 10 percent semiannual coupon bond and a zero coupon bond. Your company's tax rate is 31 percent.
Business
1 answer:
Lady_Fox [76]3 years ago
8 0

Answer:

normal bonds: $19,000,000 = 19,000 bonds

zero coupon bond: $24,366,207.91 dollars = 24,367 bonds

Explanation:

For the zero coupon bond, we will need to calculate the value which discounted at 10% per year during 25 years equals 19,000,000:

Principal \: (1+ r)^{time} = Amount

Principal 19,000,000.00

time 25.00

rate 0.01000

19000000 \: (1+ 0.01)^{25} = Amount

Amount 24,366,207.91

For the normal bonds, the company will issue the bonds at par the bond rate matches the market rate. It will issue for a face value of 19,000,000

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