You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.7 millionface value of 10-year debt. You have the following data for each:• A public issue: The interest rate on the debt would be 8.35%, and the debt would be issued at face value. The underwriting spreadwould be 1.63%, and other expenses would be $77,000.A private placement. The interest rate on the private placement would be 8.7%, but the total issuing expenses would be only$27,000..Required:a-1. Calculate the net proceeds from public issue.a-2. Calculate the net proceeds from private placement.b-1. Calculate the PV of the extra interest on the private placement.b-2. Other things being equal, which is the better deal?Complete this question by entering your answers in the tabs below.Req a1 and a2 Req b1 and b2Calculate the net proceeds from public issue and private placement. (Do not round intermediate calculations. Enter youranswers in dollars not millions.)a-1. From public issuea-2. From private placementNet Proceeds< Req a1 and a2Req b1 and b2 > Req a1 and a2 Req b1 and b2Calculate the PV of the extra interest on the private placement and other things being equal, which is the better deal? (Do notround intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest whole dollar.)b-1. PV of extra interestb-2. Other things being equal, which is the better deal?< Req a1 and a2Req b1 and b2 >

a-1.The net proceeds from the public issue is

You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.7 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 8.35%, and the debt would be issued at face value. The underwriting spread would be 1.63%, and other expenses would be $77,000. • A private placement. The interest rate on the private placement would be 8.7%, but the total issuing expenses would be only $27,000. Required: a-1. Calculate the net proceeds from public issue. a-2. Calculate the net proceeds from private placement. b-1. Calculate the PV of the extra interest on the private placement. b-2. Other things being equal, which is the better deal?

You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.7 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 8.35%, and the debt would be issued at face value. The underwriting spread would be 1.63%, and other expenses would be $77,000. • A private placement. The interest rate on the private placement would be 8.7%, but the total issuing expenses would be only $27,000. Required: a-1. Calculate the net proceeds from public issue. a-2. Calculate the net proceeds from private placement. b-1. Calculate the PV of the extra interest on the private placement. b-2. Other things being equal, which is the better deal?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.7 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 8.35%, and the debt would be issued at face value. The underwriting spread
would be 1.63%, and other expenses would be $77,000.
A private placement. The interest rate on the private placement would be 8.7%, but the total issuing expenses would be only
$27,000.
.
Required:
a-1. Calculate the net proceeds from public issue.
a-2. Calculate the net proceeds from private placement.
b-1. Calculate the PV of the extra interest on the private placement.
b-2. Other things being equal, which is the better deal?
Complete this question by entering your answers in the tabs below.
Req a1 and a2 Req b1 and b2
Calculate the net proceeds from public issue and private placement. (Do not round intermediate calculations. Enter your
answers in dollars not millions.)
a-1. From public issue
a-2. From private placement
Net Proceeds
< Req a1 and a2
Req b1 and b2 >

Req a1 and a2 Req b1 and b2
Calculate the PV of the extra interest on the private placement and other things being equal, which is the better deal? (Do not
round intermediate calculations. Enter your answer in dollars not in millions. Round your answer to the nearest whole dollar.)
b-1. PV of extra interest
b-2. Other things being equal, which is the better deal?
< Req a1 and a2
Req b1 and b2 >

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