Fun 'N Fast Games needs $21 million to finance its latest venture. The company plans to fund this project by issuing new shares of common stock at a market price of $46 a share. The indirect costs of the issue are $85,000, the direct costs are $900,000, and the underwriting spread is 7.5%. How many shares of stock must Fun 'N Fast issue to fully fund their venture?

Question

Quizplus · Accepted Answer

To fully fund their venture, Fun 'N Fast Games needs to cover the total project cost of $21 million plus all associated costs of issuing new shares. The total costs include direct costs of $900,000, indirect costs of $85,000, and the underwriting spread, which is 7.5% of the total amount raised through the share issuance. To find the total amount that needs to be raised (T), we can set up the equation: T = $21,000,000 + $900,000 + $85,000 + 0.075T. Solving for T gives us $22,085,000 / 0.925 = $23,886,486.49. Dividing this total amount by the market price per share ($46) gives the number of shares needed: $23,886,486.49 / $46 ≈ 519,307 shares.

Fun 'N Fast Games Needs $21 Million to Finance Its