Question

Suppose your company needs to raise $40 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 5.7 percent, and you’re evaluating two issue alternatives: a 5.7 percent semiannual coupon bond and a zero coupon bond. Your company’s tax rate is 21 percent. a. How many of the coupon bonds would you need to issue to raise the $40 million? How many of the zeroes would you need to issue? (Do not round intermediate calculations and enter your answers in bonds, not millions of bonds, rounded to 2 decimal places, e.g., 1,234,567.89.) b. In 20 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue zeroes? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) c. Assume that the IRS amortization rules apply for the zero coupon bonds. Calculate the firm’s aftertax cash outflows for the first year under the two different scenarios. (Enter a cash outflow as a negative value and a cash inflow as a positive value. Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Answer #1

Suppose your company needs to raise $36 million and you want to
issue 20-year bonds for this purpose. Assume the required return on
your bond issue will be 8.5 percent, and you’re evaluating two
issue alternatives: an 8.5 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.
a. How many of the coupon bonds would you need to
issue to raise the $36...

Suppose your company needs to raise $53 million and you want to
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your bond issue will be 5.3 percent, and you’re evaluating two
issue alternatives: a semiannual coupon bond with a coupon rate of
5.3 percent, and a zero coupon bond. Your company’s tax rate is 21
percent. Both bonds will have a par value of $1,000. a-1. How many
of the coupon bonds would you need to issue...

Suppose your company needs to raise $64 million and you want to
issue 25-year bonds for this purpose. Assume the required return on
your bond issue will be 5.2 percent, and you’re evaluating two
issue alternatives: A semiannual coupon bond with a coupon rate of
5.2 percent and a zero coupon bond. Your company’s tax rate is 25
percent. Both bonds will have a par value of $1,000. a-1. How many
of the coupon bonds would you need to issue...

Suppose your company needs to raise $53 million and you want to
issue 25-year bonds for this purpose. Assume the required return on
your bond issue will be 4.6 percent, and you’re evaluating two
issue alternatives: A semiannual coupon bond with a coupon rate of
4.6 percent and a zero coupon bond. Your company’s tax rate is 24
percent. Both bonds will have a par value of $2,000. a-1. How many
of the coupon bonds would you need to issue...

Jiminy's Cricket Farm issued a 30-year, 6.3 percent semiannual
bond 7 years ago. The bond currently sells for 107.8 percent of its
face value. The book value of this debt issue is $149 million. In
addition, the company has a second debt issue, a zero coupon bond
with 11 years left to maturity; the book value of this issue is $93
million, and it sells for 62.2 percent of par. The company’s tax
rate is 24 percent.
1. What is...

The Scandrick Corporation needs to raise $91 million to finance
its expansion into new markets. The company will sell new shares of
equity via a general cash offering to raise the needed funds. If
the offer price is $65 per share and the company’s underwriters
charge a spread of 7 percent, how many shares need to be sold? (Do
not round intermediate calculations and enter your answers in
shares, not millions of shares, rounded to the nearest whole
number, e.g.,...

Shanken Corp. issued a 15-year, 4.1 percent semiannual bond 2
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value. The book value of the debt issue is $40 million. In
addition, the company has a second debt issue on the market, a zero
coupon bond with 12 years left to maturity; the book value of this
issue is $35 million and the bonds sell for 50 percent of par. The
company’s tax rate is 21 percent....

Shanken Corp. issued a 25-year, 5.5 percent semiannual bond 4
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issue is $45 million and the bonds sell for 50 percent of par. The
company’s tax rate is 25 percent....

The Elkmont Corporation needs to raise $52.2 million to finance
its expansion into new markets. The company will sell new shares of
equity via a general cash offering to raise the needed funds. The
offer price is $38 per share and the company’s underwriters charge
a spread of 7 percent. The SEC filing fee and associated
administrative expenses of the offering are $1,462,000.
What are the required proceeds from the sale necessary for the
company to pay the underwriter's...

The Zuri Co. needs to raise $65.8 million to finance its
expansion into new markets. The company will sell new shares of
equity via a general cash offering to raise the needed funds. The
offer price is $58 per share and the company’s underwriters charge
a spread of 8 percent. The SEC filing fee and associated
administrative expenses of the offering are $458,000.
What are the required proceeds from the sale necessary for the
company to pay the underwriter's...

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