DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.18 million to finance pla
ID: 1174772 • Letter: D
Question
DiPitro’s Paint and Wallpaper, Inc., needs to raise $1.18 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 7.0 percent of the gross proceeds. How many bonds will DiPitro’s Paint and Wallpaper need to sell in order to receive the $1.18 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.) Number of bonds sold bonds
Explanation / Answer
Funds required by DiPitro's Paint and Wallpaper Inc. (DPPW) = $1.18 mil
But of the total bonds value issued, 7% would be charged by Investment banker
Funds received by DPPW = Issue size - (Issue Size * 7%) = 93% Issue Size
1.18 mil = 93% * Issue Size
Issue Size = $1,268,817.20
Number of bonds = $1,268,817.20/$1000 = 1268.82 bonds = 1269 bonds.