Calculating Costs of Issuing Debt 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 underwriter's spread is 8% of $25 million, which is $2 million. Therefore, the net proceeds (capital funding raised) is $25 million - $2 million = $23 million.