Question
Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.7 percent loan with gross proceeds of $5,500,000. The interest payments on the loan will
Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.7 percent loan with gross proceeds of $5,500,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.4 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 24 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.) |
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