Question
Zz Company decides to use 2 different debt contracts in addition to the reinvestment policy. 1) The first debt contract will be a 5-year unsecured
Zz Company decides to use 2 different debt contracts in addition to the reinvestment policy.
1) The first debt contract will be a 5-year unsecured loan initiated at t = 1, that is its first repayment is due in year 2, with a face value of $10K and the market interest rate of 10%. The principal of this loan will be repaid in 5 equal installments. This loan has no issuance fee and the government will subsidize the interest to be equal to 7.5%. Calculate the NPV of this loan at t = 0. Please keep 2 digits after decimal at every step.
2) The second debt contract will be a perpetual bond with a face value of $10K and a coupon/interest rate of 10% (APR) payable every two years starting one year from now (t = 0). It carries an issuance fee of $100 payable at t = 0. Calculate the NPV of the perpetual bond at t =0
THANK YOU!
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