Calculating Costs of Issuing Debt Basketball Games, Inc., with the help of its investment bank recently issued $5 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 6 percent of the gross proceeds. What is the amount of capital funding Basketball Games, Inc., raised through this debt offering?

Question

Quizplus · Accepted Answer

The amount of capital funding that Basketball Games, Inc. raised through this debt offering can be calculated as follows:

Amount of debt issued = $5 million 
Offer price/face value per bond = $1,000 
Number of bonds issued = $5 million / $1,000 = 5,000 
Underwriter's spread = 6% of gross proceeds = 6% of ($5 million x $1,000) = $300,000

So, the net proceeds from the bond issuance after deducting the underwriter's spread would be:

Net proceeds = $5 million - $300,000 = $4.7 million

Therefore, the correct answer is C.