A firm issues $160 million in straight bonds at an original issue discount of 0.5% and a coupon rate of 7.5%. The firm pays fees of 1.75% on the face value of the bonds. The net amount of funds that the debt issue will provide for the firm is closest to which of the following?

Question

Quizplus · Accepted Answer

The face value of the bonds would be $160 million, but due to the original issue discount of 0.5%, the firm will receive less than the face value. The amount of the discount is 0.5% * $160 million = $0.8 million. Therefore, the net amount received from the bond issue will be:
$160 million - $0.8 million - (1.75% * $160 million) = $156 million. Thus, the answer is D.

A Firm Issues $160 Million in Straight Bonds at an Original