DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.07 million to finance pla

Question

DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.07 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 8.5 percent of the gross proceeds.

How many bonds will DiPitro’s Paint and Wallpaper need to sell in order to receive the $1.07 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Number of bonds-

DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.07 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 8.5 percent of the gross proceeds.

Explanation / Answer

Underwriter charge for 1 bond = $ 1,000 x 8.5 % = $ 85

Net receipt from each bond = Gross proceeds – under writer’s charge

                                                       = $ 1,000 - $ 8.5

                                                       = $ 915

No. of bonds to issue to raise $1.07 million = $ 1,070,000 /915

                                                                                     = 1169.39 or 1170 bonds.

Number of bonds = 1170

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