Calculating Costs of Issuing Debt R&D,Inc

question 31

Multiple Choice

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?

• A)194,000
• B)200,000
• C)206,000
• D)206,186

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Definitions:

Administration Route

The path by which a drug, fluid, poison, or other substance, is taken into the body.

Nose

The part of the face that houses the nostrils and organs of smell and forms the beginning of the respiratory tract.

Economies Of Scale

Cost advantages reaped by companies when production becomes efficient, leading to a decrease in the per-unit cost as output increases.

Diseconomies Of Scale

The situation when a firm's costs per unit increase as it produces more output, opposite of economies of scale.