Calculating Costs of Issuing Debt Home Improvement, Inc. needs to raise $2.40 million to finance plant expansion. In discussions with its investment bank, Home Improvement learns that the bankers recommend a debt issue with a gross proceeds of $1,000 per bond and they will charge an underwriter's spread of 10 percent of the gross proceeds. How many bonds will Home Improvement need to sell in order to receive the $2.40 million they need?
|i||Amount required||$ 2,400,000|
|ii||Price per share||$ 1,000|
|iii=ii*10%||Less : underwriter's cost||$ 100|
|iv-ii-iii||Price per bond (after underwriter's cost)||$ 900|
|v||Required cash procees from bond issue||$ 2,400,000|
|vi||Price per bond (after underwriter's cost)||$900.00|
|vii =v/vi||# of bond required||2,667|
|Hence, 2667 bond is the answer|
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