Renee’s Boutique, Inc., needs to raise $58.19 million to finance firm expansion.
ID: 2617368 • Letter: R
Question
Renee’s Boutique, Inc., needs to raise $58.19 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 7.5 percent of the gross price.
Calculate the net proceeds to Renee’s from the sale of the debt. (Enter your answer in millions of dollars and round to 2 decimal places.)
How many bonds will Renee’s Boutique need to sell in order to receive the $58.19 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
Renee’s Boutique, Inc., needs to raise $58.19 million to finance firm expansion. In discussions with its investment bank, Renee’s learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter’s spread of 7.5 percent of the gross price.
Explanation / Answer
Answer of Part 1:
Funds Received = Issue Size – (0.075*issue size)
$58,190,000 = Issue Size (1-0.075)
$58,190,000 = Issue Size * 0.925
Issue Size = $58,190,000 / 0.925
Issue Size = $62,908,108.11
Net proceeds to Renee’s is $62,908,108.11
Answer of part 2:
Number of Bonds = Issue size / price per bonds
Number of Bonds = $62,908,108.11 / $1,000
Number of Bonds = 62,908