Total company’s assets on 31 December 2020 = 6,281,481 Assume that your company financed its activities by issuing a corporate bond with a total value is 15% of the total company’s assets on 31 December 2020 and you want to issue 10-year bonds for this purpose. Suppose that the required return on your bond issue will be 9%, and you are evaluating 2 issue alternatives: a semiannual coupon bond with a coupon rate of 9% and a zero-coupon bond, your company’s tax rate is 20%, both bonds will have a par value of VND 100,000.
a)How many coupon bonds would you need to issue to raise the capital needed?
b)How many zero-coupon bonds would you need to issue?
c)In the 10 years, what will your company’s repayment be if you issue the coupon bonds? What if you issue the zeroes?
d)Based on your answer in the a), b) and c), 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
