Aspin Corporation\'s charter authorizes issuance of 2 comma 300 comma 0002,300,0
ID: 2572385 • Letter: A
Question
Aspin Corporation's charter authorizes issuance of
2 comma 300 comma 0002,300,000
shares of common stock. Currently,
1 comma 400 comma 0001,400,000
shares are outstanding, and
100 comma 000100,000
shares are being held as treasury stock. The firm wishes to raise
$ 42 comma 000 comma 000$42,000,000
for a plant expansion. Discussions with its investment bankers indicate that the sale of new common stock will net the firm
$3030
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,
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?
a.The maximum number of new shares of common stock that the firm can sell without receiving further authorization is
900000 900000
shares.(Round to the nearest whole number.)b.Judging on the basis of the data given and your finding in part
a,
will the firm be able to raise the needed funds without receiving further authorization?(Select the best answer below.)
A.
No, the firm will require an additional
100 comma 000100,000
authorized shares to raise the necessary funds.
B.
No, the firm will require an additional
500 comma 000500,000
authorized shares to raise the necessary funds.
C.
No, the firm will require an additional
900 comma 000900,000
authorized shares to raise the necessary funds.
D.
Yes, the firm will 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?
(Select the best answer below.)
A.
Aspin must amend its creditors to authorize the issuance of additional shares.
B.
Aspin can issue any number of additional shares without receiving further authorization.
C.
Aspin must amend its corporate charter to authorize the issuance of additional shares.
D.
Aspin must get approval from the board of directors to authorize the issuance of additional shares.
Explanation / Answer
a. The maximum no. of shares that can be issued without authorization = 2300000 - 1400000
= 900000
b. Amount that the firm will be able to raise with 900000 shares issue = 900000 x $30 = $27,000,000
Amount required further = $42,000,000 - $27,000,000 = $15,000,000
No. of additional shares to be issued = $15,000,000/$30 = 500,000
The answer is B.
No, the firm will require an additional 500,000 authorized shares to raise the necessary funds.
c. The answer is C.
Aspin must amend its corporate charter to authorize the issuance of additional shares.
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