Question

Aspin Corporation’s charter authorizes issuance of 2,100,000 shares of common stock. Currently, 1,400,000 shares are outstanding, and 300,000 shares are being held as treasury stock. The firm wishes to raise $44,000,000 for plant expansion. Discussions with its investment bankers indicate that the sale of new common stock will net the firm $55 per share.a.  What is the maximum number of new shares of common stock that the firm can sell without receiving further​authorization?b.  Judging on the basis of the data given and your finding in part a in part a, will the firm be able to raise the needed funds without receiving further​ authorization?c.  What must the firm do to obtain authorization to issue more than the number of shares found in part a?

Answer 1

Answer:

a) Maximum no. of shares that the company can issue

= Total Authorized Shares - Shares Outstanding

= 2100000 - 1400000

= 700,000

b) Number of shares to be issued to raise $44,000,000 at $55 per share

= 44,000,000 / 55

= 800,000

No, the firm would not be able to raise the needed fund.

c) The company will have to increase the number of authorized shares which would involve making amendments to its charter of incorporation. The amendments to the charter can be done only by vote of the existing shareholders.