Question

The Valhalla Corporation needs to raise $71 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 $70 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 $775,000, how many shares need to be sold? (Do not round intermediate calculations and round your final answer to nearest whole number. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Answer 1

Answer:

1,114,518.63 shares

Explanation:

Offer price per share = $70 per share

Underwriter's spread per share = Offer price per share × 8%

                                                     = $70 × 0.08

                                                     = $5.6 per share

Net proceeds per share = Offer price per share - Underwriter's spread per share

                                        = $70 - $5.6

                                        = $64.4 per share

Amount required to be raised by issue of shares:

= Amount required for expansion + SEC filing price

= $71,000,000 + $775,000

= $71,775,000

$No.\ of\ shares\ offered=\frac{Amount\ required\ to\ be\ raised}{Net\ proceeds\ per\ share}$

$No.\ of\ shares\ offered=\frac{71,775,000}{64.4}$

                              = 1,114,518.63

Therefore, the number of shares to be sold are 1,114,518.63