Q. Larisa Warren, the owner of East Coast Yachts?

Larisa Warren, the owner of East Coast Yachts, has decided to expand her operations.

She asked her newly hired financial analyst, Dan Ervin, to enlist an underwriter to help sell $40 million in new 20-year bonds to finance new construction. Dan has entered into discussions with Kim, an underwriter from the company of Crowe & Mallard, about which bond features East Coast Yachts should consider and also illustrate what coupon rate the issue will likely have. Although Dan is aware of bond features, he is uncertain as to the costs and benefits of some features, so he isn't clear on Explain how each feature would affect the coupon rate of the bond issue.

Dan is also considering whether to issue coupon bearing bonds or zero coupon bonds.

The YTM on either bond issue will be 7.5 percent. The coupon bond would have a 7.5  percent coupon rate. The industry's tax rate is 35 percent.

Explain how many of the coupon bonds must East Coast Yachts issue to raise the $40 million? Explain how many of the zeroes must it issue?