Calculating Costs of Issuing Debt Roy's Bar,Inc.,needs to raise $25 million to finance firm expansion.In discussions with its investment bank,Roy's learns that the bankers recommend a debt issue with an offer price of $1,000 per bond and they will charge an underwriter's spread of 6 percent of the gross price.How many bonds will Roy's need to sell in order to receive the $25 million they need?
A)23,500
B)25,000
C)26,500
D)26,596

Question

Quizplus · Accepted Answer

To find the number of bonds needed, calculate the net proceeds per bond after the underwriter's spread: $1,000 - (6% of $1,000) = $940. Then, divide the total amount needed by the net proceeds per bond: $25,000,000 / $940 ≈ 26,596 bonds.