Finance Chapter 18 2 Calculating Costs Issuing Stock PAIGES Purses Inc Needs Raise 25 Million

33. Calculating Costs of Issuing Stock Paige’s Purses, Inc., needs to raise $25 million to

finance plant expansion. In discussions with its investment bank, Paige’s Purses learns that the

bankers recommend an offer price (or gross proceeds) of $50 per share and Paige’s Purses will

receive $45 per share. What is the underwriter’s spread on the issue?

34. Calculating Costs of Issuing Stock Amy’s Accessories, Inc., needs to raise $10 million to

finance plant expansion. In discussions with its investment bank, Amy’s Accessories learns that

the bankers recommend an offer price (or gross proceeds) of $25 per share and Amy’s

Accessories will receive $23 per share. What is the underwriter’s spread on the issue?

35. Calculating Costs of Issuing Debt Tennis Games, Inc., with the help of its investment

bank recently issued $25 million of new debt. The offer price (and face value) on the debt was

$1,000 per bond and the underwriter’s spread was 8 percent of the gross proceeds. What is the

amount of capital funding Tennis Games raised through this debt offering?

36. Calculating Costs of Issuing Debt Soccer Games, Inc., with the help of its investment

bank recently issued $10 million of new debt. The offer price (and face value) on the debt was

$1,000 per bond and the underwriter’s spread was 5 percent of the gross proceeds. What is the

amount of capital funding Soccer Games raised through this debt offering?

37. 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?

38. Calculating Costs of Issuing Debt Just Add Water, Inc., with the help of its investment

bank recently issued $200,000,000 of new debt. The offer price on the debt was $1,000 per bond

and the underwriter’s spread was 4 percent of the gross proceeds. What amount of capital

funding did Just Add Water raise through this bond issue?

39. Calculating Fees on a Loan Commitment You have approached your local bank for a

start-up loan commitment for $1,000,000 needed to open a car repair store. You have requested

that the term of the loan be one year. Your bank has offered you the following terms: size of loan

commitment = $1,000,000, term = one year, up-front fee = 20 basis points, back-end fee = 50

basis points, and rate on the loan = 9 percent. If you immediately take down $750,000 and no

more during the year, what is the total interest and fees you have paid on this loan commitment?

40. Calculating Fees on a Loan Commitment You have approached your local bank for a

start-up loan commitment for $500,000 needed to open a furniture repair store. You have

requested that the term of the loan be one year. Your bank has offered you the following terms:

size of loan commitment = $500,000, term = one year, up-front fee = 30 basis points, back-end

fee = 60 basis points, and rate on the loan = 10 percent. If you immediately take down $250,000

and no more during the year, what is the total interest and fees you have paid on this loan

commitment?

41. Calculating Fees on a Loan Commitment Starr Co. has been approved for a $100,000

loan commitment from its local bank. The bank has offered the following terms: term = one year,

up-front fee = 75 basis points, back-end fee = 25 basis points, and rate on the loan = 8.00

percent. Starr expects to immediately take down $80,000 and no more during the year unless

there is some unforeseen need. What is the total interest and fees Starr can expect to pay on this

loan commitment?

42. Calculating Costs of Issuing Debt Home Improvement, Inc., needs to raise $2 million to

finance plant expansion. In discussions with its investment bank, Home Improvement learns that

the bankers recommend a debt issue with gross proceeds of $1,000 per bond and they will

charge an underwriter’s spread of 7 percent of the gross proceeds. How many bonds will Home

Improvement need to sell in order to receive the $2 million they need?

43. Calculating Costs of Issuing Debt American Movers, Inc., needs to raise $5 million to

finance an expansion. In discussions with its investment bank, American learns that the bankers

recommend a debt issue with gross proceeds of $1,000 per bond and they will charge an

underwriter’s spread of 5 percent of the gross proceeds. How many bonds will American Movers

need to sell in order to receive the $5 million they need?

44. 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?

45. Calculating Costs of Issuing Debt R&D, Inc., needs to raise $200 million to finance firm

expansion. In discussions with its investment bank, R&D’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

3 percent of the gross price. How many bonds will R&D need to sell in order to receive the $200

million they need?

46. Calculating Costs of Issuing Stock Video Games, Inc., with the help of its investment

bank recently issued 10 million shares of new stock. The offer price on the stock was $47.50 per

share and Video Games received a total of $446,500,000 through this stock offering. Calculate

the net proceeds and the underwriter’s spread on the stock offering. What percentage of the

gross price is the investment bank charging Video Games for underwriting the stock issue?

47. Calculating Costs of Issuing Stock Volleyball Gear, Inc., with the help of its investment

bank recently issued 1.5 million shares of new stock. The offer price on the stock was $18.50 per

share and Volleyball Gear received a total of $26,917,500 through this stock offering. Calculate

the net proceeds and the underwriter’s spread on the stock offering. What percentage of the

gross price is the investment bank charging Volleyball Gear for underwriting the stock issue?

48. Calculating Costs of Issuing Stock Polly’s Ponies, Inc., with the help of its investment

bank recently issued 7.5 million shares of new stock. The offer price on the stock was $15.00 per

share and Polly’s Ponies received a total of $105.75 million from the stock offering. Calculate the

net proceeds and the underwriter’s spread charged by the underwriter to Polly’s Ponies. What

percentage of the gross proceeds is the investment bank charging Polly’s Ponies for underwriting

the stock issue?

49. Calculating Costs of Issuing Stock Saddles and Bridles, Inc., with the help of its

investment bank recently issued 3 million shares of new stock. The offer price on the stock was

$23.50 per share and Saddles and Bridles received a total of $68.385 million from the stock

offering. Calculate the net proceeds and the underwriter’s spread charged by the underwriter to

Saddles and Bridles. What percentage of the gross proceeds is the investment bank charging

Saddles and Bridles for underwriting the stock issue?

50. Calculating Costs of Issuing Stock Turbo Technology Corp. recently went public with an

initial public offering of 3 million shares of stock. The underwriter used a firm commitment

offering in which the net proceeds was $7.50 per share and the underwriter’s spread was 9

percent of the gross proceeds. Turbo Technology also paid legal and other administrative costs of

$200,000 for the IPO. Calculate the gross proceeds per share received by Turbo Technology from

the sale of the 3 million shares of stock.

51. Calculating Costs of Issuing Stock Computer Technology Corp. recently went public

with an initial public offering of 7 million shares of stock. The underwriter used a firm

commitment offering in which the net proceeds was $8.35 per share and the underwriter’s spread

was 7 percent of the gross proceeds. Computer Technology also paid legal and other

administrative costs of $300,000 for the IPO. Calculate the gross proceeds per share received by

Computer Technology from the sale of the 7 million shares of stock.

52. Calculating Costs of Issuing Stock TV Technology Corp. recently went public with an

initial public offering of 1.5 million shares of stock. The underwriter used a firm commitment

offering in which the net proceeds was $24.50 per share and the underwriter’s spread was 5

percent of the gross proceeds. TV Technology also paid legal and other administrative costs of

$300,000 for the IPO. Calculate the gross proceeds per share received by TV Technology from the

sale of the 1.5 million shares of stock.