Paige's Purses, Inc., needs to raise $30 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Paige's Purses learns that the bankers recommend a gross price of $25.00 per share and they will charge an underwriter's spread of $2.00 of the gross price. In addition, Paige's Purses must pay $2 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Paige's Purses will need to sell to raise the $30 million?

Question

Quizplus · Accepted Answer

The number of shares of stock that Paige's Purses will need to sell to raise the $30 million is calculated as follows:Net proceeds = $30 millionGross proceeds = Net proceeds + Underwriter's spread + Legal and other administrative expensesGross proceeds = $30 million + $2 million + $2 millionGross proceeds = $34 millionNumber of shares = Gross proceeds / Gross price per shareNumber of shares = $34 million / $25.00 per shareNumber of shares = 1,360,000 shares