The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be 10 percent. Thirty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and th underwriting spread will be 2 percent. There will be $140,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually and the debt will be outstanding for the full 5-year period, at which time it will be repaid. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. 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 16 percent annually. Use 8.00 percent semiannually throughout the analysis. (Disregard taxes.) Note: Assume the $1.60 million needed includes the underwriting costs. Input your present value of future payments answers as negative values. Do not round intermediate calculations and round your answers to 2 decimal places. Net amount to Landers Present value of future payments Net present value $ Private Placement 1,570,000.00 $ 1,570,000.00 $ Public Issue 1,428,000.00 1,428,000.00
The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be 10 percent. Thirty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 11 percent, and th underwriting spread will be 2 percent. There will be $140,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually and the debt will be outstanding for the full 5-year period, at which time it will be repaid. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. 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 16 percent annually. Use 8.00 percent semiannually throughout the analysis. (Disregard taxes.) Note: Assume the $1.60 million needed includes the underwriting costs. Input your present value of future payments answers as negative values. Do not round intermediate calculations and round your answers to 2 decimal places. Net amount to Landers Present value of future payments Net present value $ Private Placement 1,570,000.00 $ 1,570,000.00 $ Public Issue 1,428,000.00 1,428,000.00
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
Problem 1PS
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Transcribed Image Text:The Landers Corporation needs to raise $1.60 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be
10 percent. Thirty thousand 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 2 percent. There will be $140,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually,
and the debt will be outstanding for the full 5-year period, at which time it will be repaid. Use Appendix B and Appendix D for an
approximate answer but calculate your final answer using the formula and financial calculator methods.
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 16 percent annually. Use 8.00 percent semiannually
throughout the analysis. (Disregard taxes.)
Note: Assume the $1.60 million needed includes the underwriting costs. Input your present value of future payments answers
as negative values. Do not round intermediate calculations and round your answers to 2 decimal places.
Net amount to Landers
Present value of future payments
Net present value
$
$
Private Placement
1,570,000.00 $
1,570,000.00 $
Public Issue
1,428,000.00
1,428,000.00
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