Winter's Edge needs $45 million to ﬁnance a new facility and new snow removal equipment. The management has met with underwriters who feel that the ﬁrm could sell additional shares of stock
At $26 a share with an 8 percent underwriting spread. The estimated issue costs are $475,000.
How many shares of stock will Winter's Edge need to sell if they choose ﬁrm commitment
Underwriting for their new facility and equipment?

Question

Quizplus · Accepted Answer

First, we need to account for the underwriting spread of 8%. This means that the net proceeds per share will be 92% of the offering price of $26, or $23.92 (($26 x 0.92) = $23.92).

Next, we need to calculate the total amount of proceeds Winter's Edge will need to raise, including the estimated issue costs. This is calculated as follows:

Amount needed = $45,000,000 + $475,000 = $45,475,000

Finally, we divide the total amount needed by the net proceeds per share to determine the number of shares Winter's Edge needs to sell:

Number of shares = $45,475,000 / $23.92 = 1,901,129

Therefore, the answer is C) 1,901,129 shares.

Winter's Edge Needs $45 Million to ﬁNance a New Facility