: Financing J&J Air’s Expansion Plans with a Bond Issue
Mike Jackson and Terrence Jensen are the owners of J&J Air, and they recently decided to expand the
company. Recently hired financial analyst, Gus Christie, has been instructed to locate an underwriter who can
help the firm sell $35 million in new 10-year bonds. The bonds will be used to finance construction as part of
the firm’s expansion. Valerie Harper is an underwriter with the investment banking firm of Warren & Zevon.
After Gus contacted her, Valerie briefed him regarding various bond features J&J should consider, along with
an appropriate coupon rate for the anticipated bond issue.
Gus is aware of the bond features, although he is uncertain regarding the costs and benefits of some features.
Accordingly, he remains unsure about how each of these features might influence the bond issue’s coupon
rate. Assume you are Valerie’s assistant, and she has asked you to draft a memo to Gus that clearly describes
the effect of each of the following bond features on the coupon rate of the new bond issue. She also instructed
you to describe the advantages and disadvantages of each feature.
Sample Solution
