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The Landers Corporation needs to raise $1.6 million of debt on a 20-year issue. If...

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Accounting

The Landers Corporation needs to raise $1.6 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.
Which plan offers the higher net present value? 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 12 percent annually, but use 6 percent semiannually throughout the
analysis. (Disregard taxes.)

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