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P-17: Comparison of prin " and public debt offering (LO15-1) The Landers Corporation needs to...

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P-17: Comparison of prin " and public debt offering (LO15-1) The Landers Corporation needs to raise $1.60 million of debt on a 20 year issue. If it places the bonds privately, the interest rate will be 10 percent. Twenty thousand dollars in out-of-pocket costs will be incurred. For a public issue, the interest rate will be 9 percent, and the underwriting spread will be 2 percent. There will be $120,000 in out-of-pocket costs. Assume interest on the debt is paid semiannually, and the debt will be outstanding for the full 20 -year period, at which time it will be repaid. 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. Use 6 percent semiannually throughout the analysis. (Disregard taxes.)

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