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 raised through this debt offering?
A)$1,000
B)$0.30 million
C)$4.7 million
D)$5 million

Question

Quizplus · Accepted Answer

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

Total number of bonds issued = $5,000,000 / $1,000 = 5,000 bonds

Underwriter's spread = 6% x $5,000,000 = $300,000

Amount of capital funding raised = $5,000,000 - $300,000 = $4,700,000

Therefore, the answer is C, $4.7 million.