Top Notch, Inc. is expanding and needs $5 million to help fund this growth. Top Notch estimates they can sell new shares of stock for $25 a share. They also estimate that it will cost an additional $200,000 for filing and legal fees related to the stock issue. The underwriters have agreed to an 8 % spread. How many shares of stock must Top Notch sell if they are going to have $5 million available for their expansion needs?

Question

Quizplus · Accepted Answer

To find the number of shares, calculate the net proceeds per share: $25 - (8% of $25) = $23. Then, account for the $200,000 in fees: $5,000,000 + $200,000 = $5,200,000 needed. Finally, divide the total amount needed by the net proceeds per share: $5,200,000 / $23 = 226,087 shares.