Problemdaniel kaffe cfo of kendrick enterprises is, Ask an Expert

Accounting

Problem:

Daniel Kaffe, CFO of Kendrick Enterprises, is evaluating a 10-year, 5.90 percent loan with gross proceeds of $5,350,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 2.90 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 40 percent, and the loan will not increase the risk of financial distress for the company.

Requirement:

Question 1: Calculate the net present value of the loan excluding flotation costs.

Question 2: Calculate the net present value of the loan including flotation costs.

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166500

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