dear Professor,
Professor, there is a question in my exam kit where there are transaction costs at the time of issueing bonds. So here the exam kit has found equity value by deducting PV of future repayments from gross proceeds, and then divided the issue costs among equity and debt on basis of their proportion of full gross proceeds.
however i found that very complicated. Could we like directly deduct issue costs from gross proceeds, and then simply compare PV of futrre repayments with net proceeds to arrive at equity?
Is the 2nd method wrong?
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compound instruments
5y ago#1I would (unfortunately) use the method in your kit>
Step 1 - Allocate gross proceeds to equity / liability
Step 2 - Deduct transaction costs pro rata.
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