Reference no: EM131070822
The Landers Corporation needs to raise $2.00 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 14 percent. Forty five thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 12 percent, and the underwriting spread will be 2 percent. There will be $150,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 10-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 16 percent annually. Use 8.00 percent semiannually throughout the analysis. (Disregard taxes.) (Assume the $2.00 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 or private placement
|
Opportunity with an initial cash flow
: Benji's has an opportunity with an initial cash flow of $48,900 and future cash flows of -$31,300 in Year 1 and -$21,600 in Year 2. The discount rate is 7 percent. Should this project be accepted or rejected? Why? because the IRR of 5.28 percent is l..
|
|
The tax-exempt status of municipal bonds
: Everything else held constant, if the tax-exempt status of municipal bonds were eliminated, then
|
|
How much margin must be put up for each contract sold
: The margin requirement on the S&P 500 futures contract is 8%, and the stock index is currently 1,400. Each contract has a multiplier of $250. How much margin must be put up for each contract sold?. What will be the investor's percentage return based ..
|
|
Role in designing internal control systems
: Describe the controller's role in designing internal control systems. Identify examples of different internal controls a controller can consider in designing an effective internal control system. How do internal control systems help prevent fraud? Ho..
|
|
Which plan offers the higher net present value
: The Landers Corporation needs to raise $2.00 million of debt on a 10-year issue. If it places the bonds privately, the interest rate will be 14 percent. Forty five thousand dollars in out-of-pocket costs will be incurred. For each plan, compare the n..
|
|
Complete the financial data analysis template
: In the third column, calculate the difference by subtracting 2008 data from 2009 data. For instance, with cash, this would be $22,995 - $41,851 = -$18,856. In the fourth column, calculate the percentage change from the 2008 number. For instance, with..
|
|
Initial investment in net working capital-what bid price
: Romo Enterprises needs someone to supply it with 130,000 cartons of machine screws per year to support its manufacturing needs over the next five years, and you’ve decided to bid on the contract. You also need an initial investment in net working cap..
|
|
What would be rate of five year treasury and corporate notes
: NI= RI+IP+RP+LP+DP What does each variable represent and why does it affect nominal interest? If the risk-free rate of interest is 3%, and for a 5 year period, the inflation premium is to be 5%, the interest rate risk premium is .1% annually (Except ..
|
|
What ACH and EFT are and how they are being used today
: With the increasing use of ACH and EFT (and Bank Wires), has the game changed for how companies can manage their cash. Who can tell me what ACH and EFT are and how they are being used today.
|