BC Brewery issues $120 million in straight bonds at an original issue discount of 1.5% and a coupon rate of 5%.The firm also pays underwriting fees of 3% on the face value of the bonds.What are the net proceeds to BC Brewery from the bond issue?

Question

Quizplus · Accepted Answer

The net proceeds can be calculated by first determining the total amount received from the bond issue, then subtracting any discounts and fees. The original issue discount on $120 million is 1.5%, which equals $1.8 million ($120 million * 1.5%). Therefore, the amount received from the issue before fees is $120 million - $1.8 million = $118.2 million. The underwriting fees are 3% of the face value, which equals $3.6 million ($120 million * 3%). The net proceeds are then $118.2 million - $3.6 million = $114.6 million.

BC Brewery Issues $120 Million in Straight Bonds at an Original