Luther Industries needs to raise $25 million to fund a new office complex. The company plans...

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Finance

Luther Industries needs to raise $25 million to fund a newoffice complex. The company plans to issue 10-year maturity bondswith a face value of $1000 and a coupon rate of 7.0% paid annually.The following table summarizes the YTM for ten-year corporate bondsof various credit ratings:
RATING
AAA AA A BBB BB
YTM(%) 6.70% 6.80% 7.00% 7.40% 8.00%
a) Luther anticipates an A rating. However, a BBB rating ispossible. How much more in interest will Luther have to pay eachyear if its debt is rated BBB as opposed to A?
b) Assume the bonds are issued with a coupon rate of 7% paidannually and with a BB rating. What total face value must be issuedin order to raise the needed funds (i.e., $25 million)?

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Luther Industries needs to raise $25 million to fund a newoffice complex. The company plans to issue 10-year maturity bondswith a face value of $1000 and a coupon rate of 7.0% paid annually.The following table summarizes the YTM for ten-year corporate bondsof various credit ratings:RATINGAAAAAABBBBBYTM(%)6.70%6.80%7.00%7.40%8.00%a) Luther anticipates an A rating. However, a BBB rating ispossible. How much more in interest will Luther have to pay eachyear if its debt is rated BBB as opposed to A?b) Assume the bonds are issued with a coupon rate of 7% paidannually and with a BB rating. What total face value must be issuedin order to raise the needed funds (i.e., $25 million)?

			RATING
	AAA	AA	A	BBB	BB
YTM(%)	6.70%	6.80%	7.00%	7.40%	8.00%