【正文】 e amount of dollars needed at the beginning of the first year for future construction cost payments is:P0 = ($5 million)/() + ($7 million)/()2 = $ million Discounting at ten percent in this calculation reflects the interest earned in the intermediate periods. With a 10% annual interest rate, the accrued interests for the first two years from the project account of $ at t=0 will be: Year 1:I1 = (10%)( million) = $ millionYear 2:I2 = (10%)( million + $ million $ million) = million Since the issuance charge is % of the loan, the amount borrowed from the bank at t=0 to cover both the construction cost and the issuance charge isQ0 = ($ million)/(1 ) = $ million The issuance charge is = $ million or $78,000. If this loan is to be repaid by annual uniform payments from corporate earnings, the amount of each payment over the twenty year life time of the loan can be calculated by Eq. () as follows:U = ($ million)[()()20]/[()20 1] = $ million Finally, the twentyyear coupon bond would have to be issued in the amount of $ million which will reflect a higher origination fee of $169,000. Thus, the amount for financing is:Q0 = $ million + $ million = $ million With an annual interest charge of % over a twenty year life time, the annual payment would be $ million except in year 20 when the sum of principal and interest would be + = $ million. The putation for this case of borrowing has been given in Example 72. Table 72 summarizes the cash flows associated with the three alternative financing plans. Note that annual ines generated from the use of this building have not been included in the putation. The adjusted net present value of the bined operating and financial cash flows for each of the three plans discounted at the corporate MARR of 15% is also shown in the table. In this case, the coupon bond is the least expensive financing plan. Since the borrowing rates for both the bank loan and the coupon bond are lower than the corporate MARR, these results are expected. TABLE 72 Cash Flow Illustration of Three Alternative Financing Plans (in $ millions)YearSourceRetained EarningsBank LoanCoupon Bond0011122231920[APV]15%PrincipalIssuing CostEarned InterestContractor PaymentLoan RepaymentEarned InterestContractor PaymentLoan RepaymentLoan RepaymentLoan Repayment $ $ Secured Loans with Bonds, Notes and MortgagesSecured lending involves a contract between a borrower and lender, where the lender can be an individual, a financial institution or a trust organization. Notes and mortgages represent formal contracts between financial institutions and owners. Usually, repayment amounts and timing are specified in the loan agreement. Public facilities are often financed by bond issues for either specific projects or for groups of projects. For publicly issued bonds, a trust pany is usually designated to represent the diverse bond holders in case of any problems in the repayment. The borrowed funds are usually secured by granting the lender some rights to the facility or other assets in case of defaults on required payments. In contrast, corporate bonds such as debentures can represent loans secured only by the good faith and credit worthiness of the borrower. Under the terms of many bond agreements, the borrower reserves the right to repurchase the bonds at any time before the maturity date by repaying the principal and all interest up to the time of purchase. The required repayment Rc at the end of period c is the net future value of the borrowed amount Q less the payment made at intermediate periods pounded at the borrowing rate i to period c as follows:()The required repayment Rc at the end of the period c can also be obtained by noting the net present value of the repayments in the remaining (nc) periods discounted at the borrowing rate i to t = c as follows:()For coupon bonds, the required repayment Rc after the redemption of the coupon at the end of period c is simply the original borrowed amount Q. For uniform payment bonds, the required repayment Rc after the last payment at the end of period c is:()Many types of bonds can be traded in a secondary market by the bond holder. As interest rates fluctuate over time, bonds will gain or lose in value. The actual value of a bond is reflected in the market discount or premium paid relative to the original principal amount (the face value). Another indicator of this value is the yield to maturity or internal rate of return of the bond. This yield is calculated by finding the interest rate that sets the (discounted) future cash flow of the bond equal to the current market price:()where Vc is the current market value after c periods have lapsed since the issuance of the bond, is the bond cash flow in period t, and r is the market yield. Since all the bond cash flows are positive after the initial issuance, only one value of the yield to maturity will result from Eq. (). Several other factors e into play in evaluation of bond values from the lenders point of view, however. First, the lender must adjust for the possibility that the borrower may default on required interest and principal payments. In the case of publicly traded bonds, special rating panies divide bonds into different categories of risk for just this purpose. Obviously, bonds that are more likely to default will have a lower value. Secondly, lenders will typically make adjustments to account for changes in the tax code affecting their aftertax return from a bond. Finally, expectations of future inflation or deflation as well as exchange rates will influence market values. Another mon feature in borrowing agreements is to have a variable interest rate. In this case, interest payments would vary with the overall market interest rate in some prespecified