A firm issues $250 million in straight bonds at an original issue discount of 1.5% and a coupon rateof 6%. The firm pays fees of 3% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Question

Quizplus · Accepted Answer

Face value of bonds = $250 million
Original issue discount = 1.5% of face value = 0.015 * $250 million = $3.75 million
Net proceeds from bond issue = Face value - Original issue discount - Fees
Net proceeds = $250 million - $3.75 million - 3% of face value = $239 million

A Firm Issues $250 Million in Straight Bonds at an Original