DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance pla
ID: 2617371 • Letter: D
Question
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance plant expansion. In discussions with its investment bank, DiPitro’s learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross proceeds.
How many bonds will DiPitro’s Paint and Wallpaper need to sell in order to receive the $1.08 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance plant expansion. In discussions with its investment bank, DiPitro’s learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross proceeds.
Explanation / Answer
a. Net Proceeds from bonds = Gross Proceeds - Underwriter's Spread = $ 1,000 - (1000*4.5%) = $ 1,000 - $ 45 = $ 955 b. Number of bonds required = Total Amounts required/Net Proceeds from bond = $ 10,80,000 / $ 955 = 1,131 Thus, Number of bonds sold 1,131 Bonds
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