Calculating Costs of Issuing Debt Basketball Games,Inc

question 110

Multiple Choice

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?

• A)$1,000
• B)$0.30 million
• C)$4.7 million
• D)$5 million

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Definitions:

Retained Earnings

Profits that a company has decided to re-invest in the business instead of paying out to shareholders as dividends.

Liquidating Dividend

A type of dividend paid by a company to its shareholders from its capital rather than its earnings, typically during the partial or full liquidation of the company.

Dividend

A portion of a company's earnings that is paid to shareholders, typically on a quarterly basis.