Sports Management

  The Dayton Dragons professional baseball team needs $1,000,000 to make upgrades and renovations on Day Air Ballpark. They have decided to issue corporate bonds to raise $1,000,000. Below is information on the two types of bonds that they are considering issuing. You are required to show your calculations. Credit will not be given if you do not show your work. Bond A: The Dragons can issue 1000 corporate bonds with a par value of $1000 each. The coupon rate is 5%. Maturity date: 10 years. 1. Calculate the total payback on the bonds in Bond A if all bonds are held until the 10-year maturity date. You are required to show your calculations. (4 points). Bond B: The Dragons can issue 1000 corporate bonds with a par value of $1000 each. The coupon rate is 5%. In this scenario, the Dragons has the option to exercise a call provision after 5 years. If the call provision is exercised, there is a call premium of 3% and the Dragons would pay the bondholders 103%. 2. Calculate the total payback on the bonds in Bond B if the call provision is exercised at the end of year 5 as described. You are required to show your calculations. (4 points). 3. Is Bond A or Bond B better for the Dragons in the scenario provided? Why? (2 points) *Hint: To calculate total payback on the bonds, you must calculate how much is paid on each individual bond and then multiply by the number of bonds initially issued. The total value of the initial issue was $1,000,000 so your answers below must be greater than $1,000,000 after interest is paid. (Refer to the Debt & Equity Financing learning module in Week 8 Course Content for assistance).