The Educated Horses Corporation needs to raise $60 million to finance its expans

Question

The Educated Horses Corporation needs to raise $60 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. The SEC filing fee and associated administrative expenses of the offering are $900,000. If the offer price is $21 per share and the company’s underwriters charge a 9 percent spread, how many shares need to be sold?

a) 2,857,143 shares

b) 3,186,814 shares

c)2,900,000 shares

d) 3,110,882 shares

e) 3,039,717 shares

Explanation / Answer

The company needs = $60,000,000

Expenses related to admin and sec = $900,000

total capital requirement = $60,000,000+$900,000=$60,900,000

Net share price the company gets = offer price *(1-spread) = 21*0.91 = 19.11

Shares sold = total capital requirement / Net share price the company gets = $60,900,000 / 19.11 = 3,186,814 shares

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

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