True Value Tools is considering a new, eight-year maturity bond offering. The in
ID: 2751498 • Letter: T
Question
True Value Tools is considering a new, eight-year maturity bond offering. The investment bankers tell them that the issue costs will amount to two percent of the sale price of the bond. The firm’s analysts should recognize that the issue costs will Select one: a. lower the net proceeds per bond sold and lower the cost of debt financing b. raise the net proceeds per bond sold and raise the cost of debt financing c. raise the net proceeds per bond sold and lower the cost of debt financing d. lower the net proceeds per bond sold and raise the cost of debt financing
Explanation / Answer
d. lower the net proceeds per bond sold and raise the cost of debt financing.
Since flotation costs lower the net proceeds and increase cost of debt