I completed all of the questions except B-1. You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.1 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 8.05%, and the debt would be issued at face value. The underwriting spread would be 1.69%, and other expenses would be $71,000.A private placement: The interest rate on the private placement would be 8.5%, but the total issuing expenses would be only $21,000. 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?

Interest on public issue = 8.05% * $9.1 million = $732,550 Interest on Private placement = 8.5% *…

Answered: I completed all of the questions except…

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 2CMA: Staten Corporation is considering two mutually exclusive projects. Both require an initial outlay of...

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I completed all of the questions except B-1.

You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $9.1 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 8.05%, and the debt would be issued at face value. The underwriting spread would be 1.69%, and other expenses would be $71,000.
A private placement: The interest rate on the private placement would be 8.5%, but the total issuing expenses would be only $21,000.

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?

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