****ARE MY ANSWERS RIGHT?!
The Landers Corporation needs to raise $1.20 million of debt on a 5-year issue. If it places the bonds privately, the interest rate will be 8 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 8 percent, and the underwriting spread will be 5 percent. There will be $100,000 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 12 percent annually. Use 6.00 percent semiannually throughout the analysis. (Disregard taxes.) (Assume the $1.20 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 $ 1,180,000.00 (1,022,880.00) S 157,120.00 Public Issue 1,040,000.00 (1,022,880.00) 17,120.00 $ b. Which plan offers the higher net present value? Private placement O Public issue Appendix B Present value of $1, PV, PV = Percent Period 8% 0.926 0.857 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.780 0.742 0.672 0.608 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673 0.610 0.552 0.453 0.372 3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554 0.478 0.412 0.307 0.228 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456 0.375 0.308 0.208 0.141 5% 0.952 0.907 0.864 0.823 0.784 0.746 0.711 0.677 0.645 0.614 0.585 0.557 0.530 0.505 0.481 0.458 0.436 0.416 0.396 0.377 0.295 0.231 0.142 0.087 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312 0.233 0.174 0.097 0.054 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 0.184 0.131 0.067 0.034 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.116 0.075 0.032 0.013 10% 11% 0.909 0.901 0.826 0.812 0.751 0.731 0.683 0.659 0.621 0.593 0.564 0.535 0.513 0.482 0.467 0.434 0.424 0.391 0.386 0.352 0.350 0.317 0.319 0.286 0.290 0.258 0.263 0.232 0.239 0.209 0.218 0.188 0.198 0.170 0.180 0.153 0.164 0.138 0.149 0.124 0.092 0.074 0.057 0.044 0.022 0.015 0.0090.005 12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215 0.146 0.099 0.046 0.021 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104 0.059 0.033 0.011 0.003 Appendix B (concluded) Present value of $1 Period ...................... 13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087 0.047 0.026 0.008 0.002 14% 15% 0.877 0.870 0.769 0.756 0.675 0.658 0.592 0.572 0.5190.497 0.456 0.432 0.400 0.376 0.351 0.327 0.308 0.284 0.270 0.247 0.237 0.215 0.208 0.187 0.182 0.163 0.160 0.141 0.140 0.123 0.123 0.107 0.108 0.093 0.095 0.081 0.083 0.070 0.073 0.061 0.038 0.030 0.020 0.015 0.005 0.004 0.001 0.001 16% 17% 18% 0.862 0.855 0.847 0.743 0.731 0.718 0.641 0.624 0.609 0.552 0.534 0.515 0.476 0.456 0.437 0.410 0.390 0.370 0.354 0.333 0.314 0.305 0.285 0.266 0.263 0.243 0.225 0.227 0.208 0.191 0.195 0.178 0.162 0.168 0.152 0.137 0.145 0.130 0.116 0.125 0.111 0.099 0.108 0.095 0.084 0.093 0.081 0.071 0.080 0.069 0.060 0.069 0.059 0.051 0.060 0.051 0.043 0.051 0.043 0.037 0.024 0.0200.016 0.012 0.0090.007 0.003 0.002 0.001 0.0010 0 Percent 19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.074 0.062 0.052 0.044 0.037 0.031 0.013 0.005 0.001 0 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026 0.010 0.004 0.001 0 25% 0.800 0.640 0.512 0.410 0.328 0.262 0.210 0.168 0.134 0.107 0.086 0.069 0.055 0.044 0.035 0.028 0.023 0.018 0.014 0.012 0.004 0.001 30% 0.769 0.592 0.455 0.350 0.2690 0.207 0.159 0.123 0.094 0.073 0.056 .043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 0.005 0.001 35% 40% 0.741 0.714 0.549 0.510 0.406 0.364 0.301 0.260 .223 0.186 0.165 0.133 0.122 0.095 0.091 0.068 0.067 0.048 0.050 0.035 0.037 0.025 0.027 0.018 0.020 0.013 0.015 0.009 0.0110.006 0.008 0.005 0.006 0.003 0.005 0.002 0.003 0.002 0.002 0.001 0.0010 50% 0.667 0.444 0.296 0.198 0.132 0.088 0.059 0.039 0.026 0.017 0.012 0.008 0.005 0.003 0.002 0.002 0.001 0.001 0 0 0 Oo OOO OOO OOOO 0 Appendix D Present value of an annuity of $1, PVFA PVA=A Percent Period WN 7% 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 10% 0.909 1.736 2.487 3.170 3.791 4.355 600 6.515 1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046 22.023 25.808 32.835 39.196 2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 31.424 3% 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.877 17.413 19.600 23.115 25.730 4% 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 15.622 17.292 19.793 21.482 5% 0.952 1.859 2.723 3.546 4.329 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 14.094 15.372 17.159 18.256 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470 12.783 13.765 15.046 15.762 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594 11.654 12.409 13.332 13.801 8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818 10.675 11.258 11.925 12.233 9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.823 10.274 10.757 10.962 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514 9.077 9.427 9.779 9.915 11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469 7.843 8.055 8.244 8.304 ... .. Appendix D (concluded) Present value of an annuity of $1 Period 13% 14% 15% 16% 50% 0.667 1.111 1.407 1 1.605 18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 0.885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025 7.330 7.496 7.634 7.675 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.873 7.003 7.105 7.133 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 6.464 6.566 6.642 6.661 1.605 2.246 2.798 3.274 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929 6.097 6.177 6.233 6.246 17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.584 5.628 5.766 5.829 5.871 5.8805 Percent 19% 0.840 .547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.486 4.611 4.715 4.802 4.876 4.938 4.988 5.033 5.070 5.101 5.195 5.235 5.258 5.262 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.467 5.517 5.548 .554 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870 4.948 4.979 4.997 4.999 25% 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 3.571 3.656 3.725 3.780 3.824 3.859 3.887 3.910 3.928 3.942 3.954 3.985 3.995 3.999 4.000 30% 0.769 1.361 1.816 2.166 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.329 3.332 3.333 3.333 35% 0.741 1.289 1.696 1.997 2.220 2.385 2.508 2.598 2.665 2.715 2.752 2.779 2.799 2.814 2.825 2.834 2.840 2.844 2.848 2.850 2.856 2.857 2.857 2.857 40% 0.714 1.224 1.589 1.849 2.035 2.168 2.263 2.331 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 2.497 2.499 2.500 2.500 2.500 1.737 1.824 1.883 1.922 1.948 1.965 1.977 1.985 1.990 1.993 1.995 1.997 1.998 1.999 1.999 1.999 2.000 2.000 2.000 2.000
