Which would you recommend the company choose

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A-Plus, a regional real estate investment company, is trying to raise capital and has two distinct alternatives:

Alternative 1 - A publicly placed $100 million bond issue. Issuance costs are $2 million, the bond has a 6% coupon paid semiannually, and the bond has a 20-year life.

Alternative 2 - A $100 million private placement with a large pension fund. Issuance costs are $1,000,000, the bond has a 5.75% annual coupon, and the bond has a 20-year life.

Based on the lower cost (annual percentage yield), which would you recommend the company choose? You must show your calculations to receive full credit. Do not just calculate "r". You must complete the calculation to obtain APY.

Reference no: EM13974663

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