A public issue of $10 million face value of 10-year debt. The interest rate on t

Question

A public issue of $10 million face value of 10-year debt. The interest rate on the debt would be 10.5%, and the debt would be issued at face value. The underwriting spread would be 1.9%, and other expenses would be $78,000.

A private placement of $10 million face value of 10-year debt. The interest rate on the private placement would be 11.0%, but the total issuing expenses would be only $34,000.

Calculate the net proceeds of the public issue. (Enter your answer in dollars not in millions.)

Calculate the net proceeds of the private placement. (Enter your answer in dollars not in millions. Round your answer to nearest whole dollar amount.)

Explanation / Answer

a-1 Net proceeds of the public issue

Net proceeds of the public issue = Total Interest Expenses + Underwriter expenses + other expenses

Net proceeds of the public issue = 10000000*10.5%*10 + 1.9%*10000000 + 78000

Net proceeds of the public issue = $ 10,768,000

a-2 Net proceeds of the private placement = Total Interest Expenses + other expenses

Net proceeds of the private placement = 10000000*11%*10 + 34000

Net proceeds of the private placement = 11,034,000

Choose : public issue

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