HSD Corporation needs to raise funds to finance a plant expansion and it has decided to issue 25-yea zero coupon bonds to raise the money. The required return on the bonds will be 8%. Assume FV is $1000. a. What will these bonds sell for at issuance? b. How many of these bonds would the company need to issue to raise 15M? C. If the bond includes a 10% coupon, what will the bonds sell for at issuance?

HSD Corporation needs to raise funds to finance a plant expansion and it has decided to issue 25-yea zero coupon bonds to raise the money. The required return on the bonds will be 8%. Assume FV is $1000. a. What will these bonds sell for at issuance? b. How many of these bonds would the company need to issue to raise 15M? C. If the bond includes a 10% coupon, what will the bonds sell for at issuance?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

Corso Inc. wants to raise $10 million by issuing 15-year zero coupon bonds with a face value of $1,000. Their investment banker informs them that investors would use a 11.25% discount rate on such bonds. At what price would these bonds sell in the market place assuming semiannual compounding? How many bonds would the firm have to issue to raise $10 million?
1. With a view to raising a large amount of debt financing for expansion purposes, Tulip Co. will issue bonds that would have a maturity of 15 years. The annual coupon interest rate on the bond is 8% and the par value of each bond is $2000 that pays interest semiannually. If the yield to maturity is 10% then find out the price of the bond? Upon calculation of the price please specify what type of a bond is this? 2. a) Platinum Plastics Inc. is planning to raise funding through the issuance of bonds. Maturity is 15 years and the par value is $1000. Calculate the before-tax cost of issuing bonds for the company using the approximation method if the coupon rate is 7%, the flotation costs are 3% and the selling price is $930 on the b) Platinum Plastics Inc. will also issue preferred stock which is expected to sell for $93 per share. The cost of selling is expected to be $6 per share. The dividend rate is 10% of the value of each share. Calculate the cost of issuing preferred stock for…
XYZ Inc. is a company that is considering issuing bonds to finance the expansion of its activities. The managers thought about bonds with 10 or 15 years to maturity, with a coupon rate of 6%, paid semiannually. The face value of those bonds would be $1,000 and theywould expect those bonds to pay just as much as investors require, being sold at par at the issuance date. Suppose that an investor is interested in the company’s bonds, and they expect that the interest rates (YTM) are going to change immediately, decreasing by 2 percentage points compared to the YTM at issue. Which maturity bond would be better for this investor, the 10 or 15-year? What would be the dollar gain per bond with the expected immediate YTM change in each case?
Oriole Real Estate Company management is planning to fund a development project by issuing 10-year zero coupon bonds with a face value of $1,000. Assuming semiannual compounding, what will be the price of these bonds if the appropriate discount rate is 14.2 percent?
Lululemon needs to raise $115 million and wants to issue 20-year zero-coupon bonds for this purpose. Assume the required return on the bond issue will be 5.4% The tax rate is 22%. The par value of each bond is $1000. How many bonds would the company need to issue to raise the money it requires?
Harbor Inc. wants to raise $80 million by issuing 10-year zero-coupon bonds at an annual interest rate of 5.4%. What should be the total face value of the bonds (in $ million)?
I need help understanding a simple equation for this work problem The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par value bonds at a new price of $920. The bonds would mature in 13 years, and the coupon interest rate is 10%. Compute the after-tax cost of capital to Maximus for bonds, assuming a 34% tax rate. Show work
Sincere Stationary Corporation needs to raise $500,000 to improve its manufacturing plant. It has decided to issue a $1,000 par value bond with an annual coupon rate 10.0 percent with interest paid semiannually and a 10-year maturity. Investors require a return of 9.0 percent. A. Compute the market value of the bonds B. How many bonds will the firm have to issue to receive the needed funds C. What is the firms after-tax cost of debt if the firms tax rate is 34 percent
The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par value bonds at a new price of $939. The bonds would mature in 15 years, and the coupon interest rate is 9.5%. Compute the after-tax cost of capital to Maximus for bonds, assuming a 34% tax rate. Show work please
The Maximus Corporation is considering a new investment, which would be financed from debt. Maximus could sell new $1,000 par value bonds at a new price of $920. The bonds would mature in 13 years, and the coupon interest rate is 10%. Compute the after-tax cost of capital to Maximus for bonds, assuming a 34% tax rate. Show work.
Suppose your company needs to raise $28 million and you want to issue 20-year bonds for this purpose. Assume the required return on your bond issue will be 8 percent, and you're evaluating two issue alternatives: an 8 percent annual coupon and a zero coupon bond. Your company's tax rate is 25 percent. In 20 years, what will your company's repayment be if you issue the coupon bonds? What if you issue the zeros? (Assume annual compounding on the zero coupon bond.)
Airbutus Co. wants to issue new 20-year bonds for some much-needed expansion projects. The company currently has 8% coupon bonds on the market that sell for $930, make semiannual payments, and mature in 20 years. What coupon rate should the company set on its new bonds if it wants them to sell at par? How can I solve it with financial calculator method?