Raybac is about to go public. Its present shareholders own 500,000 shares. The new public issue will represent 800,000 shares. The shares will be priced at $25 to the public with a 4% spread. The out-of pocket costs will be $450,000. What are the net proceeds to the firm.
A) $18,750,000
B) $19,200,000
C) $18,250,000
D) $19,550,000

Question

Quizplus · Accepted Answer

The net proceeds to the firm are the gross proceeds minus the out-of-pocket costs. The gross proceeds are the number of shares issued multiplied by the price per share. The out-of-pocket costs are the costs incurred in issuing the shares. In this case, the gross proceeds are 800,000 shares * $25 per share = $20,000,000. The out-of-pocket costs are $450,000. Therefore, the net proceeds to the firm are $20,000,000 - $450,000 = $19,550,000.

Raybac Is About to Go Public