Kelly Girl's Golf Games, Inc., with the help of its investment bank recently issued $7.95 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. Calculate the amount of capital funding Kelly Girl's Golf Games raised through this debt offering.

Question

Quizplus · Accepted Answer

The amount of capital funding raised is calculated by subtracting the underwriter's spread from the gross proceeds. The underwriter's spread is 4% of $7.95 million, which is $318,000 ($7,950,000 * 0.04). Therefore, the capital raised is $7.95 million - $318,000 = $7,632,000.