Question

A firm issues $225 million in straight bonds at an original issue discount of 2.0% and a coupon rate of 6%. The firm pays fees of 4% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is

Answer 1

$211.5 million

Step-by-step explanation:

The computation of the net amount of funds that the debt issue is as follows

Particulars Amount

Face value of Bonds $225,000,000.00

Less Discount (225m × 0.02) -$4,500,000.00

Less fees (225m × 0.04) -$9,000,000.00

Net amount of funds $211,500,000.00

Hence, the net amount of funds that the debt issue is $211.5 million

The same is to be considered