Howett Pockett, Inc., plans to issue 10.3 million new shares of its stock. In di

Question

Howett Pockett, Inc., plans to issue 10.3 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.40 per share and they will charge an underwriter’s spread of 6.0 percent of the gross proceeds. In addition, Howett Pockett must pay $3.7 million in legal and other administrative expenses for the seasoned stock offering.

Calculate the gross proceeds per share. (Round your answer to 2 decimal places.)

Calculate the total funds received by Howett Pockett from the sale of the 10.3 million shares of stock.(Enter your answer in millions of dollars rounded to 3 decimal places.)

Howett Pockett, Inc., plans to issue 10.3 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.40 per share and they will charge an underwriter’s spread of 6.0 percent of the gross proceeds. In addition, Howett Pockett must pay $3.7 million in legal and other administrative expenses for the seasoned stock offering.

Explanation / Answer

Gross Proceeds per share = $36.60 per share

Gross Proceeds per share

Gross proceeds = Underwriters spread + Net Proceeds

Gross proceeds = [ 0.06 x Gross proceeds ] + $34.40

Gross proceeds – 0.06 Gross Proceeds + $34.40

0.94 Gross Proceeds = $34.40

Gross proceeds = $34.40 / 0.94 = $36.60 per share

Total funds received by Howett Pockett = $350.62 million

Total funds received by Howett Pockett

= [Number of shares x net proceeds per share ] - Legal and other administrative expenses

= [10.3 million shares x $34.40 per share ] - $3.70 million

= $354.32 million - $3.70 million

= $350.62 million

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