Howett Pockett, Inc., needs to raise $80 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a gross price of $47.50 per share and they will charge an underwriter's spread of $2.50. In addition, Howett Pockett must pay $3 million in legal and other administrative expenses for the seasoned stock offering. Calculate the number of shares of stock that Howett Pockett will need to sell to raise the $80 million.

Question

Quizplus · Accepted Answer

The correct answer is A.The number of shares of stock that Howett Pockett will need to sell to raise the $80 million can be calculated as follows:Number of shares = $80 million / (Gross price per share - Underwriter's spread)Number of shares = $80 million / ($47.50 - $2.50)Number of shares = $80 million / $45Number of shares = 1,777,778However, Howett Pockett must also pay $3 million in legal and other administrative expenses for the seasoned stock offering. Therefore, the number of shares that Howett Pockett will need to sell to raise the $80 million is:Number of shares = 1,777,778 + (3 million / $45)Number of shares = 1,777,778 + 66,667Number of shares = 1,844,445