22 Jul WHICH PLAN OFFERS THE HIGHER NET PRESENT VALUE?
The Landers Corporation needs to raise $1.80 million of debt on a 15-year issue. If it places th Show more The Landers Corporation needs to raise $1.80 million of debt on a 15-year issue. If it places the bonds privately the interest rate will be 14 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue the interest rate will be 13 percent and the underwriting spread will be 2 percent. There will be $100000 in out-of-pocket costs. Assume interest on the debt is paid semiannually and the debt will be outstanding for the full 15-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. The video tutorial for this problem is located at: http://www.viddler.com/embed/ffcc47a1/?f=1&autoplay=0&player=simple&disablebranding=0 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 16 percent annually. Use 8.00 percent semiannually throughout the analysis. (Disregard taxes.)(Assume the $1.80 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 $1780000 $1664000 Present value of future payments $ $ Net present value $ $ I have the Net Amount to Landers on both Private Placement and Public Issue correct but I dont know what Im doing wrong on the rest of the problem but somehow Im not getting the correct answers and Id appreciate some help. I have the Net Amount to Landers on both Private Placement and Public Issue correct but I dont know what Im doing wrong on the rest of the problem but somehow Im not getting the correct answers and Id appreciate some help. I have the Net Amount to Landers on both Private Placement and Public Issue correct but I dont know what Im doing wrong on the rest of the problem but somehow Im not getting the correct answers and Id appreciate some help. b. Which plan offers the higher net present value? Private placement Public issue Show less
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