Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
12th Edition
ISBN: 9781259144387
Author: Richard A Brealey, Stewart C Myers, Franklin Allen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 15, Problem 6PS
Private placements 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. What is the difference in the proceeds to the company net of expenses?
- b. Other things being equal, which is the better deal?
- c. What other factors beyond the interest rate and issue costs would you wish to consider before deciding between the two offers?
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You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10.4 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 8.7%, and the debt would be issued at face value. The underwriting spread would be 1.54%, and other expenses would be $84,000.
A private placement: The interest rate on the private placement would be 9.4%, but the total issuing expenses would be only $34,000.
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?
You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10.9 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 8.95%, and the debt would be issued at face value. The underwriting spread would be 1.59%, and other expenses would be $89,000.
A private placement: The interest rate on the private placement would be 9.9%, but the total issuing expenses would be only $39,000.
Is it possible to get these calculations in Excel
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.
You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $20 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 $90,000.
A private placement: The interest rate on the private placement would be 9%, but the total issuing expenses would be only $40,000.
Required:
(a.) What is the difference in the proceeds to the company net of expenses?
(b.) Other things being equal, which is the better deal?
Chapter 15 Solutions
Principles of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 15 - Prob. 1PSCh. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 3PSCh. 15 - Prob. 4PSCh. 15 - Prob. 5PSCh. 15 - Private placements You need to choose between...Ch. 15 - Prob. 7PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...
Ch. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 12PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...Ch. 15 - Prob. 19PSCh. 15 - Prob. 20PSCh. 15 - Prob. 21PSCh. 15 - Dilution Here is recent financial data on Pisa...
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