You need to choose between making a public offering and arranging a private placement. In each case, the issue involves $10.5 million face value of 10-year debt. You have the following data for each:

A public issue: The interest rate on the debt would be 8.75%, and the debt would be issued at face value. The underwriting spread would be 1.55%, and other expenses would be $85,000.

A private placement: The interest rate on the private placement would be 9.5%, but the total issuing expenses would be only $35,000.

Required:

a-1. Calculate the net proceeds from public issue.

a-2. Calculate the net proceeds from private placement.

b-1. Calculate the PV of the extra interest on the private placement.

b-2. Other things being equal, which is the better deal?