American Chemical Corporation (ACC) is a multinational manufacturer of industrial chemical products. ACC has made great progress in energy-cost reduction and has implemented several cogeneration projects in the United States and Puerto Rico, including the completion of a 35 megawatt (MW) unit in Chicago and a 29MW unit at Baton Rouge. The division of ACC being considered for one of its more recent cogeneration projects is a chemical plant located in Texas. The plant has a power usage of 80 million kilowatt hours (kWh) annually. However, on the average, it uses 85% of its 10 MW capacity, which would bring the average power usage to 68 million kWh annually. Texas Electric presently charges $0.09 per kWh of electric consumption for the ACC plant, a rate that is considered high throughout the industry.

Because ACCs power consumption is so large, the purchase of a cogeneration unit is considered to be desirable. Installation of the cogeneration unit would allow ACC to generate their own power and to avoid the annual $6,120,000 expense to Texas Electric. The total initial investment cost would be $10,500,000: 10,000,000 for the purchase of the power unit itself (a gas fired 10 MW Allison 571) and engineering, design, and site preparation; and $500,000 includes the purchase of interconnection equipment (such as poles and distribution lines) that will be used to interface the cogenerator with the existing utility facilities.

ACC is considering two financing options:

• ACC could finance $2,000,000 through the manufactured at 10% for 10 years and will finance the remaining $8,500,000 through issuing common stock. The flotation cost for a common stock offering is 8.1%, and the stock will be priced at $45 per share.
• Investment bankers have indicated that 10-year 9% bonds could be sold at a price of $900 for each $1,000 bond. The flotation costs would be 1.9% to raise 10.5 million.

(a) Determine the debt-repayment schedule for the term loan from the equipment manufacturer.

(b) Determine the flotation costs and the number of common stocks to sell to raise the $8,500,000.

(c) Determine the flotation costs and the number of $1,000 par value bonds to be sold to raise $10.5 million.