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For issue costs, the case mentions that issue costs are payable out of cash reserves. Therefore, the finance does not need to be grossed up, which means that the grossing up of $100m / 98% = $102.04 is not needed. Please may I know why is this so? What is the purpose of grossing up and not grossing up actually?
Thank you.
Issue costs have to be paid out of something. If they are to be paid out of the money raised, then they need to raise the grossed up amount (so that after issue costs they are left with the money needed to be able to cover the cost of the project).
Oh, that means in the case scenario above, since the company mentioned that it is able to pay for the issue costs out of cash reserves, that means that the company now has no problem in paying for the cost of the project because they are confident that they can settle the debt, and hence, there is no need to gross up the amount?
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