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, and all the shares are primary shares sold to new investors, what percentage of the company will be owned by the new investors?

Question

Quizplus · Accepted Answer

The correct answer is A.The underwriter's fee is 5% of gross proceeds, which is $200 million * 5% = $10 million. The net proceeds to the company are $200 million - $10 million = $190 million. The number of new shares issued is $190 million / $32 per share = 5.94 million shares. The percentage of the company owned by the new investors is 5.94 million shares / 50 million shares * 100% = 11.88%.

Highlander Homes Shares Trade at $32 Per Share and There