DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.08 million to finance plant expansion. In discussions with its investment bank, DiPitro’s learns that the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an underwriter’s spread of 4.5 percent of the gross proceeds. |
How many bonds will DiPitro’s Paint and Wallpaper need to sell in order to receive the $1.08 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.) |
Number of bonds sold |
bonds |
a. | |||||||||
Net Proceeds from bonds | = | Gross Proceeds - Underwriter's Spread | |||||||
= | $ 1,000 | - | (1000*4.5%) | ||||||
= | $ 1,000 | - | $ 45 | ||||||
= | $ 955 | ||||||||
b. | Number of bonds required | = | Total Amounts required/Net Proceeds from bond | ||||||
= | $ 10,80,000 | / | $ 955 | ||||||
= | 1,131 | ||||||||
Thus, | |||||||||
Number of bonds sold | 1,131 | Bonds | |||||||
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