The Landers Corporation needs to raise $2.10 million of debt on a 20-year issue. If it places the bonds privately, the interest rate will be 12 percent. Thirty five 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 5 percent. There will be $90,000 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 availableinflowto 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 7.00 percent semiannually throughout the analysis. (Disregard taxes.) (Assume the $2.10 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 (private)- (Public)-

presentvalue of future payments (Private)- (Public)-

Net present value (Private)- (public)-

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2.

The Presley Corporation is about to go public. It currently has aftertax earnings of $6,400,000, and 3,500,000 shares are owned by the present stockholders (the Presley family). The new public issue will represent 200,000 new shares. The new shares will be priced to the public at $20 per share, with a 5 percent spread on the offering price. There will also be $120,000 in out-of-pocket costs to the corporation.

a. Compute the net proceeds to the Presley Corporation. (Do not round intermediate calculations and round your answer to the nearest whole dollar.)

b. Compute the earnings per share immediately before the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.)

c. Compute the earnings per share immediately after the stock issue. (Do not round intermediate calculations and round your answer to 2 decimal places.)

d. Determine what rate of return must be earned on the net proceeds to the corporation so there will not be a dilution in earnings per share during the year of going public. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 5 percent increase in earnings per share during the year of going public. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)