Don’s Captain Morgan, Inc., needs to raise $14.10 million to finance plant expan

Question

Don’s Captain Morgan, Inc., needs to raise $14.10 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $22.00 per share and Don’s will receive $19.85 per share.

Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.)

How many shares of stock will Don’s need to sell in order to receive the $14.10 million it needs?

Don’s Captain Morgan, Inc., needs to raise $14.10 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $22.00 per share and Don’s will receive $19.85 per share.

Explanation / Answer

Answer:

Underwriter's spread per share = Offer Price - Proceeds per share received by Don

                                               = 22.00 - 19.85

                                                = 2.15 Per Share..

Number of shares = amount required/net proceeds per share = 14.10 milliom/19.85 = 710,327 shares

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