Aspin Corporation\'s charter authorizes issuance of 2,000,000 shares of common s

Question

Aspin Corporation's charter authorizes issuance of 2,000,000 shares of common stock. Currently 1,400,000 shares are outstanding and 100,000 shares are being held as treasury stock. The firm wishes to raise $48,000,000 for a plant expansion. Discussions with its investment bankers idicate that the sale of new common stock will net the firm $60 per share.

a. What is the maximum number of new shares of common stack that the firm can sell without receiving further authorization from shareholders?

b. Judging on the basis of the date 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?

Explanation / Answer

Answer (a)

Maximum number of new shares the firm can sell without receiving further authorisation = 500,000

Answer (b)

Amount of funds that can be raised without further authorisation = $ 30,000,000

Answer (c)

The firm needs to obtain permission from the shareholders for creation of new shares and then raise the balance amount of $18,000,000 by issuing the new shares.

Authorised Issuance = 2,000,000 shares

Outstanding       = 1,400,000 shares

Treasury stock   =     100,000 shares

Balance available for issuance = 2,000,000 – 1,400,000 – 100,000 = 500,000

Price realisable per share = $60

Amount which can be raised without authorisation = 500000*60 = 30,000,000

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