Explore BrainMass

Explore BrainMass

    Private and Public Debt: compare the two options for Howard Corporation

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    16. The Howard Corporation needs to raise $1 million of debt on a 20-year issue. If it places the binds privately, the interest rate will be 11 percent, and $25,000 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 $75,000 in out-of-pocket costs. Assume interest on the dept is paid semiannually, and the debt will be outstanding for the full 20 years, at which time it will be repaid.

    a. Which plan offers the higher present value?

    b. 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 12 percent annually, but use 6 percent semiannually throughout the analysis (disregard taxes)

    © BrainMass Inc. brainmass.com June 3, 2020, 11:17 pm ad1c9bdddf
    https://brainmass.com/business/derivatives/private-and-public-debt-compare-the-two-options-for-howard-corporation-272418

    Solution Preview

    ANSWERS
    Requirement A
    The plan with the lowest interest will have the higher ...

    Solution Summary

    The expert examines private and public debt. Two options for Howard Corporation are compared.

    $2.19

    ADVERTISEMENT