73. You have approached your local bank for a start-up loan commitment for $290,000
needed to open a computer 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 = $290,000, term =
one year, up-front fee = 45 basis points, back-end fee = 80 basis points, and rate on the loan =
9.5 percent. If you immediately take down $175,000 and no more during the year, calculate the
total interest and fees you have paid on this loan commitment.
74. One Stop has been approved for a $55,000 loan commitment from its local bank. The
bank has offered the following terms: term = one year, up-front fee = 85 basis points, back-end
fee = 35 basis points, and rate on the loan = 9.75 percent. Casey’s expects to immediately take
down $45,000 and no more during the year unless there is some unforeseen need. Calculate the
total interest and fees Casey’s One Stop can expect to pay on this loan commitment.
75. Sipe’s Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion.
In discussions with its investment bank, Sipe’s Paint and Wallpaper 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 8.25 percent of the gross proceeds. How many bonds will Sipe’s Paint
and Wallpaper need to sell in order to receive the $1.25 million they need?
76. Renee’s Boutique, Inc., needs to raise $300 million to finance firm expansion. In
discussions with its investment bank, Renee’s Boutique 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
7.125 percent of the gross price. How many bonds will Renee’s Boutique need to sell in order to
receive the $300 million they need?
77. Kelly Girl’s Golf Games, Inc., with the help of its investment bank recently issued 1.5
million shares of new stock. The offer price on the stock was $36.25 per share and Kelly Girl’s
Golf Games received a total of $50,000,000 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 Kelly Girl’s Golf Games for underwriting the stock issue?
78. Bailey’s Dog Pens, Inc., with the help of its investment bank recently issued 5 million
shares of new stock. The offer price on the stock was $15 per share and Bailey’s Dog Pens
received a total of $65 million from the stock offering. What percentage of the gross proceeds is
the investment bank charging Bailey’s Dog Pens for underwriting the stock issue?
79. Bailey’s Dog Pens, Inc., with the help of its investment bank recently issued 5 million
shares of new stock. The offer price on the stock was $19.5 per share and Bailey’s Dog Pens
received a total of $70 million from the stock offering. What percentage of the gross proceeds is
the investment bank charging Bailey’s Dog Pens for underwriting the stock issue?
80. Howett Pockett, Inc., plans to issue 10 million new shares of its stock. In discussions with
its investment bank, Howett Pockett learns that the bankers recommend a net proceed of $15
per share and they will charge an underwriter’s spread of 6.5 percent of the gross proceeds. In
addition, Howett Pockett must pay $1 million in legal and other administrative expenses for the
seasoned stock offering. Calculate the gross proceeds per share from the sale of the 10 million
shares of stock.
81. During the last year you have had a loan commitment from your bank to fund working
capital for your business. The total line available was $10,000,000, of which you took down
$9,125,000. It is now the end of the loan commitment period and your bank had you pay the back–
end fees. You have misplaced the paperwork that listed the terms of the commitment, but you
know you paid total fees (this does not include any interest paid to borrow the $9,125,000) of
$31,100 on this loan commitment. You remember that the back-end fee was 85 basis points.
Calculate the front-end fee on this loan commitment.
82. During the last year you have had a loan commitment from your bank to fund working
capital for your business. The total line available was $10,000,000, of which you took down
$7,800,000. It is now the end of the loan commitment period and your bank had you pay the back–
end fees. You have misplaced the paperwork that listed the terms of the commitment, but you
know you paid total fees (this does not include any interest paid to borrow the $7,800,000) of
$51,200 on this loan commitment. You remember that the back-end fee was 112 basis points.
Calculate the front-end fee on this loan commitment.
83. Sipe’s Paint and Wallpaper, Inc., needs to raise $1.25 million to finance plant expansion.
In discussions with its investment bank, Sipe’s Paint and Wallpaper learns that the bankers
recommend a gross price of $37.20 per share and that 48,500 shares of stock be sold. If the net
proceeds on the stock sale leaves Sipe’s Paint and Wallpaper with $1.25 million, calculate the
underwriter’s spread on the stock issue.
84. Renee’s Boutique, Inc., needs to raise $75.25 million to finance firm expansion. In
discussions with its investment bank, Renee’s Boutique learns that the bankers recommend an
offer price of $67 per share and that 1.25 million shares of stock be sold. If the net proceeds on
the stock sale leaves Renee’s Boutique with $75.25 million, calculate the underwriter’s spread on
the stock issue.
85. Hughes Technology Corp. recently went public with an initial public offering in which they
received a total of $42 million in new capital funding. The underwriter used a firm commitment
offering in which the offer price was $22 and the underwriter’s spread was $0.85. Hughes
Technology also paid legal and other administrative costs of $825,000 for the IPO. Calculate the
number of shares issued through this IPO.
86. Howett Pockett, Inc., needs to raise $80 million in new capital funding from a seasoned
equity offering. In discussions with its investment bank, Howett Pocket learns that the bankers
recommend a gross price of $47.50 per share and they will charge an underwriter’s spread of
$2.50. In addition, Howett Pockett must pay $3 million in legal and other administrative expenses
for the seasoned stock offering. Calculate the number of shares of stock that Howett Pockett will
need to sell to raise the $80 million.
87. A security issued in which the underwriter does not guarantee a firm price to the issuer
and acts more as a placing or distribution agent for a fee is referred to as:
88. Wealthy individuals who make equity investments in firms are referred to as:
89. All of the following are advantages of an IPO EXCEPT:
90. The advantage of the shelf registration is that:
91. A syndicate is:
92. Most business loans today are:
93. A facility fee is:
94. A commitment fee is:
95. Which of the following is an example of an appropriate loan covenant?
96. Which of the following is an example of an appropriate loan covenant?
97. Which of the following statements is incorrect?