Question
Nuran Security Systems, Inc. needs to raise $150 million for asset expansion. As it raises the capital funding, Nuran wants to maintain its current debt
Nuran Security Systems, Inc. needs to raise $150 million for asset expansion. As it raises the capital funding, Nuran wants to maintain its current debt ratio of 60 percent. Nuran has been approved for a loan commitment from its local bank. The bank has offered the following terms: term = one year, up-front fee = 60 basis points, back-end fee = 90 basis points. Nuran expects it will take down 90 percent of the loan commitment. Nurans will also issue new shares of stock to support this asset growth. Nurans investment bank will use a firm commitment offering in which the net proceeds are $23.875 per share and the underwriters spread is 7 percent of the gross proceeds. Nuran Security Systems will also pay legal and other administrative costs of $750,000 for the stock issue. Calculate the amount of debt and equity funding Nuran Security Systems will need to keep its current debt ratio constant and the number of shares of stock the firm must issue to raise the needed funds. What can Nuran Security Systems, Inc. expect to pay for fees on this loan commitment and stock issue?
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