Use the documents given to only solve for Debt 3 in table 2

what we know:

Bond	$100,000,000
Interest	4.80%
Term	25
Coupon Rate	4.80%
Par	$1,000
Bond Price	$950.00

1. Suggest the "best" means to finance the project, that is determine the optimal capital stack, i.e. minimize the weighted average cost of capital To find this please find the effective annual cost of capital from each debt and equity source. (only do debt 3) find the following for debt 3

Coupon Payment

Annual Coupon Payment

Yr 12 Balance

Calculated Rate

Effective Cost

Your boss (you work for a C-Corp) just came into your office and said: We have agreed to buy the Trump Tower for 700 million dollars. The purchase must be financed with a minimum of 15% equity to satisfy the covenants on most loan agreements. After talking with commercial bankers (that could supply mortgage instruments), investment bankers (which could help float equity instruments) and private equity partners (which could provide preferred IRR equity, Preferred stock, or more complex mezzanine instruments) your boss has concluded that there are originally only 5 potential sources of debt financing and 2 potential sources of equity financing to consider, Your boss says that the holding period of ownership in the Trump Tower is expected to be 12 years. Twelve years from now we expect to be able to resell the building for between 750M and 950M dollars. A financial analyst that you trust has projected NOI and reversion values in table 1. TABLE 1 Possible NOI and reversion values robability | NOI each and every Yr 1-12 Ll 0 37.5% | 1 12.5% 120M g VA RYA Additional information: the marginal corporate tax rate for your C-Corp is 28%! Additionally, please note that an excel template has been provided on D2L. Please use this template so that your answers are organized in a fashion similar to other students in the class. This will allow the instructor to efficiently grade the exams. bl TABLE 2: Background information on the securities Debt or Mortgage Status Amortize? Stated Stated Yrs Special Equity? or bond amount int rate To Features Maximum Maturity to zero D1 Debt Mortgage Senior, Fully 100M 6.6% 30 Monthly old collateralized D2 Debt Mortgage Senior, Fully 100M 3.2% 20 Monthly old collateralized 5 points plus 100K closing costs D3 Debt Bond Junior Non amortizing 100M 4.8%? 25 semi annual old Coupon rate 4.8% coupon Price is 95% of par Payments Par=1000 Call option with right to repurchase all bonds at a price of par plus one years coupon interest D4 | Debt Mortgage Senior Interest only 100M 20 MonthlyTable 3 Pattern of LIBOR anticipated by your Financial Analysts on a beginning of year basis (reset of the ARM happens at the begining of each period) 11 Government Bond rates of Interest and other return information X1 X1 15- year T-Bond 1.65% ) %}