Stanley's Flags wants to raise $5 million to open a new distribution center. The company estimates the issue costs including the legal and accounting fees will be $210,000. The underwriters have set the stock price at $18 a share and the underwriting spread at 7.5 %. How many shares of stock does Stanley's have to sell to meet its cash need?

Question

Quizplus · Accepted Answer

To meet its cash need of $5 million, Stanley's Flags must account for the issue costs of $210,000, making the total amount needed $5,210,000. The underwriting spread of 7.5% reduces the amount the company receives per share to $18 * (1 - 0.075) = $16.65. Therefore, the number of shares needed is $5,210,000 / $16.65 ≈ 312,913 shares.

Stanley's Flags Wants to Raise $5 Million to Open a New