Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Landers Corporation needs to raise $1.20 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be

image text in transcribed

The Landers Corporation needs to raise $1.20 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 12 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 10 percent, and the underwriting spread will be 2 percent. There will be $120,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 20-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 14 percent annually. Use 700 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.) Private Placement Public Issue Net amount to Landers Present value of future payments Net present value b. Which plan offers the higher net present value? Public issue Private placement

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Sports Finance And Management Real Estate Entertainment And The Remaking Of The Business

Authors: Jason A. Winfree, Mark S. Rosentraub, Brian M Mills

1st Edition

1439844712, 9781439844717

More Books

Students also viewed these Finance questions

Question

=+a) Find the EV for his actions.

Answered: 1 week ago

Question

Did you add the logo at correct size and proportion?

Answered: 1 week ago

Question

Did you ask for action?

Answered: 1 week ago