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Renee's Boutique, Inc., needs to raise $58.16 million to finance firm expansion. In discussions...

Question:

Renee's Boutique, Inc., needs to raise $58.16 million to finance firm expansion. In discussions with its investment bank, Renee'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 5.5 percent of the gross price. Calculate the net proceeds to Renee's from the sale of the debt. (Enter your answer in millions of dollars and round to 2 decimal places.) How many bonds will Renee's Boutique need to sell in order to receive the $58.16 million it needs? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Flotation Costs:

Firms often need to raise capital externally to fund new projects and investments. Issuing new securities usually incurs flotation costs, which are expenses related to the underwriting of the securities, legal expenses and other administrative costs.

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Cost of Capital: Flotation Cost, NPV & Internal Equity

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Chapter 3 / Lesson 18
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How does a business figure out the true cost and best means of obtaining capital? In this lesson, we will explore the cost of capital, flotation cost, net present value, and internal equity to help answer that question.


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