Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann

Question

Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang's current value of equity is $59 million. Zang currently has 3 million shares outstanding and will issue 1.5 million new shares. ESM charges a 6% spread.
What is the correctly valued offer price? Round your answer to the nearest cent.

How much cash will Zang raise net of the spread? Round intermediate calculations to two decimal places. Round your answer to three decimal places. Enter your answer in millions.

Explanation / Answer

Answer:

Value of Equity = $ 59 million

Outstanding shares = 3 million

Value per share = $59/ $3 = $19.67

New issue = $ 1.5 million shares

Offer price = $1.5 million * 19.67 =$29.50 million

Amount raised by Zang net of spread = $29.50/ 1.06 = $27.83 million

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