Suppose your company needs to raise $39 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 7 percent and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 7 percent and a zero coupon bond. Your company's tax rate is 24 percent. Assume a par value of $1,000. Calculate the firm's aftertax cash outflows for the first year for the zero coupon bond
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- Assume that all participants in the following have an interest rate or discount rate of 10%. A firm could either finance an operation by selling 1% of a constant stream of income of $50 million per year forever (an equity exchange) or by selling a 5 year bond with a 15% coupon rate and a face value of $3 million.a. What is the present value of the equity?b. What is the present value of the bond?Suppose you purchase a 10-year bond with 6% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 4.01% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ The total cash flow at time 4 (after the fourth coupon) is $ negative number.) b. What is the internal rate of return of your investment? (Round to the nearest cent. Enter a cash outflow as aSuppose your company needs to raise $41.3 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 6.3 percent, and you're evaluating two issue alternatives: a semiannual coupon bond with a coupon rate of 6.3 percent and a zero coupon bond. The tax rate is 23 percent. Both bonds will have a par value of $1,000 a. How many of the coupon bonds would you need to issue to raise the $41.3 million? How many of the zeroes would you need to Issue? Note: Do not round intermediate calculations. Round your coupon bond answer to the nearest whole number, e.g., 32 and your zero coupon bond answer to 2 decimals, e.g., 32.16. b. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zerpes? Note: Do not round intermediate calculations and enter your answers in dollars, not millions, rounded to the nearest whole number, e.g., 1,234,567. c. Assume that the IRS amortization rules apply for the…
- Suppose you purchase a ten-year bond with 12% annual coupons. You hold the bond for four years and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 10.64% when you purchased and sold the bond, a. What cash flows will you pay and receive from your investment in the bond per $100 face value? b. What is the internal rate of return of your investment? Note: Assume annual compounding. a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flow at time 1-3 is $ (Round to the nearest cent. Enter a cash outflow as a negative number.) The cash outflow at time 0 is $ number.) (Round to the nearest cent. Enter a cash outflow as a negative The total cash flow at time 4 (after the fourth coupon) is $. (Round to the nearest cent. Enter a cash outflow as a negative number.) b. What is the internal rate of return of your investment? The internal rate of return of your investment is %. (Round to two decimal…Suppose your firm issues a €100,000,000 5-year bond with a coupon rate of 8% per annum (assume annual compounding). The bond will sell at face value to investors. The underwriting spread is an up-front fee of 2%. What is the actual cost of this debt? Please enter your answer as % -- e.g. if your answer is 2.34% type in 2.34.2) As an investor, you are considering an investment in the bonds of the Soccer Company. The bonds, which pay interest semiannually, will mature in ten years, and have a coupon rate of 6.5% on a face value of $1,000. a) Assume your required return is 8% (market rate) for the bonds in this risk class, what is the highest price you would be willing to pay for the bond? (Use the PV function) b) What is the current yield of these bonds? c) If you bought the bond at the above calculated price and hold the bonds for one year, what total rate of return will you earn (assuming the market rate does not change)? Hint: You need to calculate the bond price one year ahead (note: in one year 9 years are left to maturity) and then compute the total return based on the capital gains/loss yield (in %) and the current yield (in %) from b). d) What is the yield to maturity on these bonds if you purchase them at the price calculated under a)? (Use the RATE function) e) If the bonds can be called in three…
- Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 2 3 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 C. Years 0 1 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 + $6.19 $6.19 $6.19 $104.27 Cash Flows - $110.46 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)Suppose that the yield to maturity of the 5% coupon, 25-year maturity bond falls to 7% by the end of the first year and that the investor sells the bond after the first year. If the investor's federal plus state tax rate on interest income is 30% and the combined tax rate on capital gains is 20%, what is the investor's after- tax rate of return?Suppose you purchase a 10-year bond with 6.19% annual coupons. You hold the bond for 4 years, and sell it immediately after receiving the fourth coupon. If the bond's yield to maturity was 5.34% when you purchased and sold the bond, a. what cash flows will you pay and receive from your investment in the bond per $100 face value? b. what is the annual rate of return of your investment? a. What cash flows will you pay and receive from your investment in the bond per $100 face value? The cash flows from the investment are shown in the following timeline: (Round to the best choice below.) A. Years 0 2 3 4 Cash Flows $106.46 $6.19 $6.19 $6.19 $110.46 B. Years 0 2 3 4 Cash Flows - $106.46 $6.19 $6.19 $6.19 $110.46 ○ C. Years 0 2 3 4 Cash Flows $104.27 $6.19 $6.19 $6.19 $110.46 D. Years 0 2 3 4 Cash Flows - $110.46 $6.19 $6.19 $6.19 $104.27 b. What is the annual rate of return of your investment? The annual rate of return of your investment is %. (Round to two decimal places.)
- Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, A-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.83 % — AAA corporate 1.03 0.20 % AA corporate 1.39 0.56 A corporate 1.79 0.96 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: fill in the blank _ % 7-year Corporate yield: fill…Suppose your company needs to raise $10 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 9 percent, and you’re evaluating two issue alternatives: a 9 percent annual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent. How many of the coupon bonds would you need to issue to raise the $10 million? How many of the zeroes would you need to issue? In 30 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes? Based on your answers in (a) and (b), why would you ever want to issue the zeroes? To answer, calculate the firm’s after tax cash outflows for the first year under the two different scenarios. Assume the IRS amortization rules apply for the zero coupon bonds.Suppose you are considering two possible investment opportunities: a 12-year Treasury bond and a 7-year, AA-rated corporate bond. The current real risk-free rate is 3%, and inflation is expected to be 2% for the next 2 years, 3% for the following 4 years, and 4% thereafter. The maturity risk premium is estimated by this formula: MRP = 0.02(t - 1)%. The liquidity premium (LP) for the corporate bond is estimated to be 0.3%. You may determine the default risk premium (DRP), given the company's bond rating, from the following table. Remember to subtract the bond's LP from the corporate spread given in the table to arrive at the bond's DRP. Corporate Bond Yield Rate Spread = DRP + LP U.S. Treasury 0.73 % — AAA corporate 0.93 0.20 % AA corporate 1.33 0.60 A corporate 1.75 1.02 What yield would you predict for each of these two investments? Round your answers to three decimal places. 12-year Treasury yield: 6.553%----->correct 7-year Corporate yield: ? %…