Howett Pockett, Inc., plans to issue 10.4 million new shares of its stock. In di

Question

Howett Pockett, Inc., plans to issue 10.4 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.60 per share and they will charge an underwriter’s spread of 5.5 percent of the gross proceeds. In addition, Howett Pockett must pay $3.8 million in legal and other administrative expenses for the seasoned stock offering.

Calculate the gross proceeds per share. (Round your answer to 2 decimal places.)

Gross proceeds    $ ___________ per share

Calculate the total funds received by Howett Pockett from the sale of the 10.4 million shares of stock. (Enter your answer in millions of dollars rounded to 3 decimal places.)

Funds received by Howett Pockett   $ ____________ m

Explanation / Answer

Howett Pockett, Inc. All Amounts in $ Let us assume the gross proceeds per share as X 5.5% of this will be underwriter's spread Hence, the net proceeds will be 95% of X Now 95% of X = $ 34.60 Therefore, X = $ 34.60 / 95% = 36.42 $ per share The total funds received by Hewett Pockett from the sale of the 10.4 million shares in stock Net Proceeds for 10.4 million shares @ $ 34.60 per share = 359.8 $ million Less : Legal and Administrative Costs paid 3.8 $ million Net Funds received from Sale of 10.4 million shares 356 $ million

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