Question

You need to choose between making a public offering and arranging a private placement. in each case, the issue involves $10 million face value of 10-year debt. you have the following data for each: a public issue: the interest rate on the debt would be 8.5%, and the debt would be issued at face value. the underwriting spread would be 1.5%, and other expenses would be $80,000. a private placement: the interest rate on the private placement would be 9%, but the total issuing expenses would be only $30,000.

Calculate the net proceeds from public issue.

Answer 1

To calculate the net proceeds from a public issue, subtract the underwriting spread and other expenses from the face value of the debt.

Step-by-step explanation:

To calculate the net proceeds from a public issue, we need to subtract the underwriting spread and other expenses from the face value of the debt. In this case, the face value is $10 million.

The underwriting spread is 1.5%, which is equivalent to $150,000 (1.5% x $10 million). The other expenses are $80,000. To calculate the net proceeds, subtract the underwriting spread and other expenses from the face value: $10 million - $150,000 - $80,000 = $9,770,000.