Problem 18-6 NPV of Loans The CFO of Kendrick Enterprises, is evaluating a 10-year, 7 percent loan with gross proceeds of $5,800,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 22 percent and the loan will not increase the risk of financial distress for the company. a. Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the net present value of the loan including flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Net present value b. Net present value
Problem 18-6 NPV of Loans The CFO of Kendrick Enterprises, is evaluating a 10-year, 7 percent loan with gross proceeds of $5,800,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 22 percent and the loan will not increase the risk of financial distress for the company. a. Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Calculate the net present value of the loan including flotation costs. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) a. Net present value b. Net present value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Problem 18-6 NPV of Loans
The CFO of Kendrick Enterprises, is evaluating a 10-year, 7 percent loan with gross
proceeds of $5,800,000. The interest payments on the loan will be made annually.
Flotation costs are estimated to be 2.7 percent of gross proceeds and will be amortized
using a straight-line schedule over the 10-year life of the loan. The company has a tax
rate of 22 percent and the loan will not increase the risk of financial distress for the
company.
a. Calculate the net present value of the loan excluding flotation costs. (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
b. Calculate the net present value of the loan including flotation costs. (Do not round
intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Net present value
b. Net present value
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