Question

The Whistling Straits Corporation needs to raise $70 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $30 per share and the company's underwriters charge a spread of 8 percent. If the SEC filing fee and associated administrative expenses of the offering are $575,000, how many shares need to be sold

Answer 1

Answer:

2,557,065 shares

Explanation:

Offer price = $30 per share

Underwriters Charge : 8%

If the company's underwriters sells new shares at the $30 per share issue price, Whistling straits corporation will receive:

offer price x (1 - underwriters charge)

= $30 × (1 - 0.08) = $27.60

The number of shares that needs to be sold will be:

$\frac{amount needed + administrative expenses}{27.60}$

$\frac{70,000,000 + 575,000}{27.60}$

= 2,557,065.217

≈ 2,557,065

Therefore number of shares to be issued will be = 2557065 shares