EBK CFIN
6th Edition
ISBN: 9781337671743
Author: BESLEY
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 3, Problem 19PROB
Summary Introduction
MM needs $175 million to support operations. To raise the needed funds, the firm issued bonds at $1,000 each bond. The bank charges are 2.5% on total debt value and other cost is worth of $500,000. Calculate the number of outstanding bonds to be issued.
Debt financing is the process of raising debt capital by issuing shares to investors due to short-term need or long-term goal or for the future growth of the firm.
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Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM's investment banker will charge flotation costs of 2.5% of the total amount issued to help MM raise the funds. In addition, MM will incur other costs associated with the issue that equal $500,000. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $175 million that it needs?
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