Year Profits After Taxes 1 $18,000,000 2 21,000,000 3 19,000,000 4 23,000,000 5
ID: 2664207 • Letter: Y
Question
Year Profits After Taxes
1 $18,000,000
2 21,000,000
3 19,000,000
4 23,000,000
5 25,000,000
(13-2) (p. 433) (Flotation costs and issue size) Your firm needs to raise $10M. Assuming that flotation costs are expected to be $15 per share, and that the market price of the stock is $120, how many shares would have to be issued? What is the dollar size of the issue?
Clearly label the calculation required ratios and solve using excel. Use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round to the nearest whole number.
Explanation / Answer
a) According to the given problem, Capital to be raised = $10,000,000 Market value per share = $120 Number of shares = $10,000,000 / $120 = 83,333 But the flotation costs are $15 per share. Amount of flotation costs = $15 * 83,333 = $1,249,995 Therefore, the number of shares to be issued are 83,333. b) Calculating the dollar size of the issue: Dollar size of the issue = ($120 - $15) * Number of shares = $105 * 83,333 = $8,749,965 Therefore, the dollar size of the issue is $8,749,965
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