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%, and the debt would be issued at face value. The underwriting spread would be 1.5%, 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%, 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?