Calculating Costs of Issuing Debt Soccer Games,Inc

question 24

Multiple Choice

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?

• A)$1,000
• B)$0.5 million
• C)$9.5 million
• D)$10 million

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Definitions:

EBIT-EPS Analysis

A tool used in financial analysis to determine the impact of leverage on a company's earnings per share (EPS) by holding earnings before interest and taxes (EBIT) constant.

Leverage Levels

The degree to which a business or investor is utilizing borrowed money.

EPS

Earnings Per Share, a company's profit divided by its number of outstanding shares of common stock, indicating how much money each share earns.

EBIT

The measure known as Earnings Before Interest and Taxes determines a company's profit levels by excluding interest and tax-related expenses.