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. If the underwriter charges 5% of gross proceeds, how many shares must it sell?

Question

Quizplus · Accepted Answer

The correct answer is A.The underwriter charges 5% of gross proceeds, so the net proceeds to Highlander Homes will be $200 million / (1 - 0.05) = $210.53 million. To raise $210.53 million at a price of $32 per share, Highlander Homes must sell 210.53 million / 32 = 6.58 million shares.

Highlander Homes Shares Trade at $32 Per Share and There