Reference no: EM132949774
The construction cost of the freight terminal is estimated at $20 million. You have been asked to prepare a report for the company's Board of Directors to evaluate the best financing arrangement under different scenarios. You have narrowed down your choices to the following alternatives:
Alternative 1: Raise the required amount from the proceeds of a new 6% coupon bond with a face value of $ 21,764,514.48, and a maturity period of 5 years. The annual market interest rate is 8%. The coupon payment is payable semiannually.
Alternative 2: A private equity firm has offered to finance the entire construction in a financing arrangement whereby Babosa Freight Inc. would make ten equal semiannual installment payments of exactly $2,465,817.61 each for five years. The appropriate annual market interest rate implied in the arrangement is 8%.
Required: Round answers to the nearest whole dollar Please use the provided PV tables.
Problem 1: Determine the annual interest expense for the year ending December 31, 2018 for each e financing alternative.
Problem 2: Which financing alternative would you recommend to Babosa Freight's Board of Directors if the company's objective is to show the lowest reported long term debt liability on its balance sheet for the year ended December 31st 2018? You must support your recommendation with all necessary calculations.
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