Highlander Homes shares trade at $32 per share and there are 50 million shares outstanding. The management would like to raise $200 million in an SEO, and current investors would like to sell $50 million of their own shares. If the underwriter charges 5% of gross proceeds, how many shares must it sell in the total (primary and secondary) offering?

Question

Quizplus · Accepted Answer

To raise $250 million (including $50 million from current investors), the company needs to account for the 5% underwriter fee. The gross proceeds required are $250 million / (1 - 0.05) = $263.16 million. At $32 per share, the number of shares to sell is $263.16 million / $32 = 8.22 million shares.

Highlander Homes Shares Trade at $32 Per Share and There