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 a-1. Calculate the net proceeds from public issue. Note: Enter your answer in dollars not millions of dollars. a-2. Calculate the net proceeds from private placement. Note: Enter your answer in dollars not millions of dollars. b-1. Calculate the Present Value of the extra interest on the private placement. Note: Do not round intermediate calculations. Enter your answer in dollars not millions of dollars. Round your answer to the nearest whole dollar amount. b-2. Other things being equal, which is the better deal? Answer is complete but not entirely correct. $ S S Public issue a-1. Net proceeds of public issue 2. Net proceeds of private placement b-1. Present value of extra interest b-2. Better deal is 9,770,000 € 9.970,000 € 5,000
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 a-1. Calculate the net proceeds from public issue. Note: Enter your answer in dollars not millions of dollars. a-2. Calculate the net proceeds from private placement. Note: Enter your answer in dollars not millions of dollars. b-1. Calculate the Present Value of the extra interest on the private placement. Note: Do not round intermediate calculations. Enter your answer in dollars not millions of dollars. Round your answer to the nearest whole dollar amount. b-2. Other things being equal, which is the better deal? Answer is complete but not entirely correct. $ S S Public issue a-1. Net proceeds of public issue 2. Net proceeds of private placement b-1. Present value of extra interest b-2. Better deal is 9,770,000 € 9.970,000 € 5,000
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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Transcribed Image Text: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
a-1. Calculate the net proceeds from public issue.
Note: Enter your answer in dollars not millions of dollars.
a-2. Calculate the net proceeds from private placement.
Note: Enter your answer in dollars not millions of dollars.
b-1. Calculate the Present Value of the extra interest on the private placement.
Note: Do not round intermediate calculations. Enter your answer in dollars not millions of dollars. Round your answer to the
nearest whole dollar amount.
b-2. Other things being equal, which is the better deal?
Answer is complete but not entirely correct.
a-1. Net proceeds of public issue
a-2. Net proceeds of private placement
b-1. Present value of extra interest
b-2. Better deal is
9,770,000
9.970,000
5,000
$
$
Public issue
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