Beach Stuff, Inc., needs to raise $10 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Beach Stuff learns that the bankers recommend a gross price of $20.00 per share and they will charge an underwriter's spread of $1.75 of the gross price. In addition, Beach Stuff must pay $1.5 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Beach Stuff will need to sell to raise the $10 million?

Question

Quizplus · Accepted Answer

The number of shares of stock that Beach Stuff will need to sell to raise the $10 million is calculated as follows:Net proceeds = $10 millionGross proceeds = Net proceeds + Underwriter's spread + Legal and other administrative expensesGross proceeds = $10 million + $1.75 per share * Number of shares + $1.5 millionGross proceeds = $10 million + $1.75 per share * Number of shares + $1.5 millionGross proceeds = $11.5 million + $1.75 per share * Number of sharesGross price per share = $20.00Number of shares = Gross proceeds / Gross price per shareNumber of shares = ($11.5 million + $1.75 per share * Number of shares) / $20.00Number of shares = 575,000 shares