Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.10 percent loan with gross proceeds of
Question:
Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 6.10 percent loan with gross proceeds of $5,860,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.60 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 35 percent, and the loan will not increase the risk of financial distress for the company. |
a. | Calculate the net present value of the loan excluding flotation costs. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |
Net present value | $ |
b. | Calculate the net present value of the loan including flotation costs. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)) |