Calculating Costs of Issuing Debt Soccer Games, Inc., with the help of its investment bank recently issued $10 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 5 percent of the gross proceeds. What is the amount of capital funding Soccer Games, Inc., raised through this debt offering?
A) $1,000
B) $0.5 million
C) $9.5 million
D) $10 million

Question

Quizplus · Accepted Answer

The amount of capital funding raised through the debt offering can be calculated as follows:
Total gross proceeds = Face value of bonds × Number of bonds = $1,000 × 10,000 = $10,000,000
Underwriter's spread = 5% of gross proceeds = 0.05 × $10,000,000 = $500,000
Net proceeds to Soccer Games, Inc. = Gross proceeds – Underwriter's spread = $10,000,000 – $500,000 = $9,500,000
Therefore, the amount of capital funding raised by Soccer Games, Inc. through the debt offering is $9.5 million.