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Lower Borrowing Cost.

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(Comparing borrowing costs) Stephen Security has two financing alternative: (1) A publicly placed $50 million bond issues. Issuance costs are $1 million, the bond has a 9% coupon paid semiannually, and the bond has a 20-year life. (2) A $50 million private placement with a large pension fund. Issuance costs are $500,00, the bond has a 9.25% annual coupon, and the bond has a 20 year life. Which alternative has the lower cost (annual percentage yield)?

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Solution Summary

This solution is comprised of detailed calculation of the cost of bond issuance and private placement with pension fund using excel and identifying the one that has lower borrowing cost.

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