Studies Chapter 8 Chapter 9 Chapter 10 Chapter 8 Financing East Coast Yachts Expansion Plans with a Bond Issue Inpur area: Years to maturity Required return Amount needed Face value 7.50% 50.000.000 1.000 Coupon rate Tax rate 7.50% 35% Year bond is called Spread above Treasury Treasury rate at cal Treasury rate at call 0.40% 4 80% 8.20% Output area: 2) Price of coupon bond of coupon bonds needed -235.413 50.000 Price of zero coupon bond # of zeroes needed 04 4076 3) Repayment of coupon bonds Repayment of zeroes 4) Year 1 interest payments: Pretax coupon payment Aftertax coupon payment Cash in or outflow Value of zero in one year Zero coupon growth Zero coupon bond Cash in or outflow During the life of a bond, the zero generates cash inflows to the firm in the form of the interest tax shield of debt. 5) Make whole price Make whole price Studies Chapter 8 Chapter 9 Chapter 10 Chapter 8 Financing East Coast Yachts Expansion Plans with a Bond Issue Inpur area: Years to maturity Required return Amount needed Face value 7.50% 50.000.000 1.000 Coupon rate Tax rate 7.50% 35% Year bond is called Spread above Treasury Treasury rate at cal Treasury rate at call 0.40% 4 80% 8.20% Output area: 2) Price of coupon bond of coupon bonds needed -235.413 50.000 Price of zero coupon bond # of zeroes needed 04 4076 3) Repayment of coupon bonds Repayment of zeroes 4) Year 1 interest payments: Pretax coupon payment Aftertax coupon payment Cash in or outflow Value of zero in one year Zero coupon growth Zero coupon bond Cash in or outflow During the life of a bond, the zero generates cash inflows to the firm in the form of the interest tax shield of debt. 5) Make whole price Make whole price