Tennis Games, Inc., with the help of its investment bank recently issued $25 million of new debt. The offer price (and face value) on the debt was $1,000 per bond and the underwriter's spread was 8 percent of the gross proceeds. What is the amount of capital funding Tennis 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 8% of $25 million, which is $2 million. Therefore, the net proceeds (capital raised) are $25 million - $2 million = $23 million.