Renee’s Boutique, Inc., needs to raise $58.12 million to finance firm expansion.
ID: 354514 • Letter: R
Question
Renee’s Boutique, Inc., needs to raise $58.12 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 $58.12 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.) Number of bonds bonds
Explanation / Answer
Answer: - Given data Renee's need $58,120,000 to finance firm expansion
Debt issue with an offer price of $1,000 per bond
Charge an underwriters spread of 5.5 % of the gross price
a) Net proceeds to renee's from the sale of the debt is calculated using
=> Issue size - ( 0.055 * Issue size) = $58,120,000
=> Issue size * (1 - 0.055) = $58,120,000
=> Issue Size = $58,120,000 / (1 - 0.055)
=> $58,120,000 / 0.945 = $61,502,645.5 ~ $61,502,646
b) Bonds need by renee's in order to receive $58,120,000 is calculated using $1,000 per bond
So, Number of bonds = Issue size / price per bond
=> $61,502,646 / $1,000 = $61502.646 ~ $61503 Bonds
Number of bonds = $61503 Bonds