Calculating Costs of Issuing Debt Just Add Water, Inc., with the help of its investment bank recently issued $200,000,000 of new debt. The offer price on the debt was $1,000 per bond and the underwriter's spread was 4 percent of the gross proceeds. What amount of capital funding did Just Add Water, Inc., raise through this bond issue?
A) $1,000
B) $8,000,000
C) $192,000,000
D) $200,000,000

Question

Quizplus · Accepted Answer

The underwriter's spread is 4% of $200,000,000, which is $8,000,000. Therefore, the net proceeds raised by Just Add Water, Inc. is $200,000,000 - $8,000,000 = $192,000,000.