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Category > Business & Finance Posted 25 May 2017 My Price 8.00

The Landers Corporation needs to rais

The Landers Corporation needs to raise $1.70 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 12 percent. 25000 dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and the underwriting spread will be 3 percent. There will be $110,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 20-year period, at which time it will be repaid. Use AppendixB andAppendix D.

 

(a)

For each plan, compare the net amount of funds initially available:inflow:to the present value of future payments of interest and principal to determine net present value. Assume the stated discount rate is 13 percent annually. Use 6.50 percent semiannually throughout the analysis. (Disregard taxes.) (Round "PV Factor" to 3 decimal places. Amounts to be deducted should be indicated with a minus sign. Enter your answers in dollars not millions rounded to nearest whole number.)

 

Private placement
Net amount to Landers $
Present value of future payments  
 
Net present value (private offering) $
 

 

Public issue
Net amount to Landers $
Present value of future payments  
 
Net present value (public offering) $
 

 

(b) Which plan offers the higher net present value?
   
 
  Private placement
  Public issue
 

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Status NEW Posted 25 May 2017 05:05 PM My Price 8.00

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