Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.3 percent loan with gross proceeds of

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Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.3 percent loan with gross proceeds of $4.6 million. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.5 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 21 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. 

b. Calculate the net present value of the loan including flotation costs.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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Corporate Finance

ISBN: 978-1259918940

12th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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