Private Placements. 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 8.5 percent and the debt would be issued at face value. The underwriting spread would be 1.5 percent and other expenses would be $80,000.

A private placement of $10 million face value of 10-year debt. The interest rate on the private placement would be 9 percent but the total issuing expenses would be only

$30,000.

a. What is the difference in the proceeds to the company net of expenses?

b. Other things equal, which is the better deal?

c. What other factors beyond the interest rate and issue costs would you wish to consider before deciding between the two offers?