Suppose your company needs to raise $45 million and you want to issue 30-year bonds for this purpose. Assume the required return on your bond issue will be 6 percent, and you’re evaluating two issue alternatives: A 6 percent semi-annual coupon bond and a zero coupon bond. Your company’s tax rate is 35 percent.
Calculate the after tax cash flows for the first year for each bond
Coupon Bond:
Zero Coupon Bond: