Question: You need to choose between the following types of issues:
• A public issue of $10 million face value of 10-year debt. The interest rate on the debt would be 8.0%, and the debt would be issued at face value. The underwriting spread would be 1.9%, and other expenses would be $83,000.
• A private placement of $10 million face value of 10-year debt. The interest rate on the private placement would be 8.5%, but the total issuing expenses would be only $39,000.
a) Calculate the net proceeds of the public issue
b) Calculate the net proceeds of the private placement.