Question

A company had 158 million shares outstanding at the beginning of the year 2012. On February 2, 2012, the company issued an additional 30 million shares to the market at a price of $50, while the market price per share was $50. The resulting price per share after new issuance will be____________.

Answer 1

The resulting price per share after new issuance will be $50

Solution:

Values:

Company shares = 158 million shares  

Additional shares = 30 million shares

Market price = $50 per share

Evaluating:

Total value of equity prior to issue = Company shares * Market price

                                                         = 158 million * 50

                                                         = $7.9 billion

Value of share issue = Additional shares * Market price

                                   = 30 million * 50

                                   = $1.5 billion

Total value of equity after share issue = Total value of equity prior to issue + Value of share issue

                                                               = 7.9 billion + 1.5 billion

                                                                = $9.4 billion

Shares outstanding after share issue = Company shares + Additional shares

                                                              = 158 million + 30 million

                                                             = 188 million

Price per share after issue = $\frac{Total value of equity after share issue}{Shares outstanding after share issue}$

                                            = $\frac{9.4 billion}{188 million}$

                                            = $50