The Elkmont Corporation needs to raise $52.2 million to finance its expansion in

Question

The Elkmont Corporation needs to raise $52.2 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 offer price is $38 per share and the company’s underwriters charge a spread of 7 percent. The SEC filing fee and associated administrative expenses of the offering are $1,462,000.

What are the required proceeds from the sale necessary for the company to pay the underwriter's spread and administrative costs?

How many shares need to be sold?

Explanation / Answer

a. Underwriters expenses is 7% of 52,200,000 =0.07*52,200,000 = $3,654,000

Hence company has to pay $3,654,000 for underwriters and admin costs

b. Total capital to raised = 52,200,000 + 3,654,000 + 1,462,000 = $57,316,000

So number of shares to be raised =57,316,000/38 = 1,508,315.78 =1,508,316 shares

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