The Educated Horses Corporation needs to raise $25 million to finance its expans

Question

The Educated Horses Corporation needs to raise $25 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $25 per share and the company's underwriters charge a 8 percent spread, how many shares need to be sold?

A. 1,043,478

B. 1,000,000

C. 1,130,435

D. 1,086,957    

E. 925,926

The Educated Horses Corporation needs to raise $25 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $25 per share and the company's underwriters charge a 8 percent spread, how many shares need to be sold?

Explanation / Answer

The amount to be raised by Educated Horses is $ 25,000,000

The offer price per share is given as $ 25

Now it is given that company's underwriters charge a 8% spread.

Spread here actually means the difference between the underwriting price and the offer price which we have to keep at 8%.

Let us assume that x be the amount to be raised after adding the underwriters spread of 8%

Therfore,

25,000,000 = x (1 - 0.08)

25,000,000 = x (0.92)

25,000,000/0.92 = x

x = $ 27,173,913.04

So, the number of shares to be issued will be,

$27,173,913.04/$25     ................($ 25 is the offer price)

=1086956.52

=1086957

So option D will be the right answer.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.