PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 15, Problem 26PS
Private placements You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10 million face value of 10-year debt. You have the following data for each:
- A public issue: The interest rate on the debt would be 8.5%, and the debt would be issued at face value. The underwriting spread would be 1.5%, and other expenses would be $80.000.
- A private placement: The interest rate on the private placement would be 9%, but the total issuing expenses would be only $30,000.
- a. What is the difference in the proceeds to the company net of expenses?
- b. Other things being equal, which is the better deal?
- c. What other factors beyond the interest rate and issue costs would you wish to consider before deciding between the two offers?
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You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10.4 million face value of 10-year debt. You have the following data for each:
A public issue: The interest rate on the debt would be 8.7%, and the debt would be issued at face value. The underwriting spread would be 1.54%, and other expenses would be $84,000.
A private placement: The interest rate on the private placement would be 9.4%, but the total issuing expenses would be only $34,000.
Required:
a-1. Calculate the net proceeds from public issue.
a-2. Calculate the net proceeds from private placement.
b-1. Calculate the PV of the extra interest on the private placement.
b-2. Other things being equal, which is the better deal?
You need to choose between making a public offering and arranging a private placement. In each case, the issue
involves $10.3 million face value of 10-year debt. You have the following data for each:
• A public issue: The interest rate on the debt would be 8.65%, and the debt would be issued at face value. The
underwriting spread would be 1.53%, and other expenses would be $83,000.
• A private placement. The interest rate on the private placement would be 9.3%, but the total issuing expenses
would be only $33,000.
Required:
a-1. Calculate the net proceeds from public issue.
a-2. Calculate the net proceeds from private placement.
b-1. Calculate the PV of the extra interest on the private placement.
b-2. Other things being equal, which is the better deal?
Complete this question by entering your answers in the tabs below.
Req al and a2 Req b1 and b2
Calculate the net proceeds from public issue and private placement. (Do not round intermediate calculations. Enter your
answers in dollars…
You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10 million
face value of 10-year debt. You have the following data for each:
• A public issue. The interest rate on the debt would be 8.5%, and the debt would be issued at face value. The underwriting
spread would be 1.5%, and other expenses would be $80,000.
A private placement. The interest rate on the private placement would be 9% , but the total issuing expenses would be only
$30,000
a-1. Calculate the net proceeds from public issue.
Note: Enter your answer in dollars not millions of dollars.
a-2. Calculate the net proceeds from private placement.
Note: Enter your answer in dollars not millions of dollars.
b-1. Calculate the Present Value of the extra interest on the private placement.
Note: Do not round intermediate calculations. Enter your answer in dollars not millions of dollars. Round your answer to the
nearest whole dollar amount.
b-2. Other things being…
Chapter 15 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 15 - Vocabulary Each of the following terms is...Ch. 15 - Prob. 2PSCh. 15 - Vocabulary Here is a further vocabulary quiz....Ch. 15 - Stock issues True or false? a. Venture capitalists...Ch. 15 - Prob. 5PSCh. 15 - Prob. 6PSCh. 15 - Prob. 7PSCh. 15 - Venture capital Complete the passage using the...Ch. 15 - Venture capital a. A signal is credible only if it...Ch. 15 - IPOs Refer to Section 15.1 and the Marvin...
Ch. 15 - Prob. 11PSCh. 15 - Prob. 12PSCh. 15 - Issue costs In April 2019. Van Dyck Exponents...Ch. 15 - Underpricing In same U.K. IPOs, any investor may...Ch. 15 - Prob. 15PSCh. 15 - Prob. 16PSCh. 15 - Underpricing Construct a simple example to show...Ch. 15 - Prob. 18PSCh. 15 - Prob. 19PSCh. 15 - Costs of a general cash offer Why are the costs of...Ch. 15 - Prob. 21PSCh. 15 - Prob. 22PSCh. 15 - Rights issues In 2012, the Pandora Box Company...Ch. 15 - Prob. 24PSCh. 15 - Rights issues vs. cash offers Suppose that instead...Ch. 15 - Private placements You need to choose between...Ch. 15 - Prob. 27PSCh. 15 - Prob. 28PSCh. 15 - Dilution Here is recent financial data on Pisa...
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