Nu Tech wants to raise $21 million to purchase equipment by issuing new securities.Management estimates the issue will cost the firm $320 000 for accounting,legal,and other costs.The underwriting fee is 7.5 per cent and the issue price is $21 per share.How many shares must be sold if Nu Tech is to receive sufficient funds to purchase all the desired equipment?

Question

Quizplus · Accepted Answer

The correct answer is A.The number of shares that must be sold is calculated as follows:Total proceeds required = $21 million + $320,000 = $21,320,000Number of shares to be sold = Total proceeds required / Issue price= $21,320,000 / $21= 1,015,238 sharesHowever, since the underwriting fee is 7.5%, the number of shares that must be sold is increased by 7.5% to cover the underwriting fee.Therefore, the number of shares that must be sold is:= 1,015,238 shares * 1.075= 1,097,555 shares

Nu Tech Wants to Raise $21 Million to Purchase Equipment