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    Face Value of Debt

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    You need to choose between the following types of issues:

    ? A public issue of $10 million face value of 10-year debt. The interest rate on the debt would be 8.0%, and the debt would be issued at face value. The underwriting spread would be 1.9%, and other expenses would be $83,000.

    ? A private placement of $10 million face value of 10-year debt. The interest rate on the private placement would be 8%, but the total issuing expenses would be only $39,000.

    a-1. Calculate the net proceeds of public issue. (Enter your answer in dollars not in millions.)

    Net proceeds of public issue= $ _____________

    a-2. Calculate the net proceeds of private placement. (Enter your answer in dollars not in millions.)

    Net proceeds of private placement= $ ___________________

    b. Other things equal, which is the better deal?

    Private placement
    Public issue

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    https://brainmass.com/business/accounting/face-value-debt-458917

    Solution Preview

    a-1. Calculate the net proceeds of public issue. (Enter your answer in dollars not in millions.)

    Net proceeds of public issue= $ 9,727,000

    Face value: $ 10,000,000

    Expenses: ...

    Solution Summary

    The face value of debt is determined.

    $2.19

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