A Firm Issues $200 Million in Straight Bonds at Par

question 42

Multiple Choice

A firm issues $200 million in straight bonds at par and a coupon rate of 7%. The firm pays fees of 2.5% on the face value of the bonds. What is the net amount of funds that the debt issue will provide for the firm?

• A) $195 million
• B) $186 million
• C) $205 million
• D) $200 million

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Definitions:

Marginal Costs

The additional cost incurred in the production of one more unit of a good or service.

Fixed Costs

Costs that do not change with the amount of goods or services produced, such as rent, salaries, or insurance.

Accounting Profit

Profits as shown on a company’s financial statements. Accounting profit does not necessarily correspond to real or economic profit.

Variable Costs

Costs that vary directly with the level of production or a company's output, such as materials and labor.