Renee’s Boutique, Inc., needs to raise $58.02 million to finance firm expansion.
ID: 2618409 • Letter: R
Question
Renee’s Boutique, Inc., needs to raise $58.02 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 5.5 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.)
Net proceeds to Renee’s $ m
How many bonds will Renee’s Boutique need to sell in order to receive the $58.02 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.)
Explanation / Answer
Answer a.
Amount to be raised = $58,020,000
Underwriter Cost = 5.5%
Net Proceed = Amount to be raised / (1 - Underwriter Cost)
Net Proceed = $58,020,000 / (1 - 0.055)
Net Proceed = $61,396,825.40
Answer b.
Net Proceed = $61,396,825.40
Face Value = $1,000
Number of bonds issued = Net Proceed / Face Value
Number of bonds issued = $61,396,825.40 / $1,000
Number of bonds issued = 61,397