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Problem 15-12 Interest on Zeroes Tesla Corporatio...

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Problem 15-12 Interest on Zeroes Tesla Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 30-year zero coupon bonds to raise the money. The required return on the bonds will be 7 percent. Assume semiannual compounding. Required: (a) What will these bonds sell for at issuance? (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) Price of the bonds $ (b) Using the IRS amortization rule, what interest deduction can the company take on these bonds in the first year? In the last year? (Do not include the dollar signs ($). Round your answers to 2 decimal places. (e.g., 32.16)) First year interest deduction $ Last year interest deduction $ (c) Repeat part (b) using the straight-line method for the interest deduction. (Do not include the dollar sign ($). Round your answer to 2 decimal places. (e.g., 32.16)) Annual interest deduction $ (d) Based on your answers in (b) and (c), which interest deduction method would Tesla Corporation prefer? Straight line method Amortization method

 

Paper#1839 | Written in 18-Jul-2015

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