Question

Given a need to raise capital of $2 million and attorney costs of $150,000, with an underwriter's spread of 3%, the amount of bond issuance should be:

Answer 1

The total amount of bond issuance required to raise $2 million, after accounting for attorney costs of $150,000 and an underwriter's spread of 3%, is approximately $2,216,494.85.

Step-by-step explanation:

To calculate the amount of bond issuance needed to raise $2 million considering attorney costs and an underwriter's spread, you'll need to take into account the additional expenses that come with issuing bonds beyond the capital you wish to raise.

The attorney costs are given as $150,000. The underwriter's spread is a fee paid to the underwriters for their role in distributing the bonds, which is 3% of the total bond issuance.

Let's denote the amount of bond issuance as x. The total costs are the sum of the attorney costs and the underwriter's spread, which is 3% of x.

The equation to find the total issuance required will then be:

x = $2,000,000 + $150,000 + (0.03 * x)

Rearranging the equation to solve for x, we get:

x - (0.03 * x) = $2,000,000 + $150,000

x * (1 - 0.03) = $2,150,000

x = $2,150,000 / 0.97

x ≈ $2,216,494.85

Therefore, the total amount of bond issuance should be approximately $2,216,494.85 to cover the $2 million in capital needed, the attorney costs, and the underwriter's spread.

Answer 2

The amount of bond issuance is $2,085,500

Step-by-step explanation:

The computation of the amount of bond issuance is shown below:

= Raise capital + attorney cost - underwriter spread

= $2,000,000 + $150,000 - 3% of $2,150,000

= $2,150,000 - 3% of $2,150,000

= $2,150,000 - $64,500

= $2,085,500

Hence, the amount of bond issuance is $2,085,500

We simply applied the above formula so that the correct value could come