Imagination Dragons Corporation needs to raise funds to finance a plant expansion, and it has decided to issue 25-year zero coupon bonds with a par value of $1,000 each to raise the money. The required return on the bonds will be 8 percent. Assume semiannual compounding periods. a. What will these bonds sell for at issuance? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
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 round intermediate calculations and round your answers to 2 decimal places, e. g., 32.16.)
c. Repeat part (b) using the straight-line method for the interest deduction. (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)
Issue price = _298.13_
First year deduction = __14.79___
Last year deduction = __47.26
Straight-line deduction = __28.07
d. Based on your answers in (b) and (c), which interest deduction method would the company prefer?
IRS amortization rule?
Straight-line method?