Beth's Bulk Foods wants to raise $4 million to open a new retail outlet. The company estimates the issue costs including the legal and accounting fees will be $280,000. The underwriters have set the
Stock price at $23 a share and the underwriting spread at 8 percent. How many shares of stock
Does Beth's have to sell to meet the cash need?

Question

Quizplus · Accepted Answer

Total cash need = $4,000,000
Issue costs = $280,000
Total funds required = $4,280,000

The underwriting spread is 8%, which means that Beth's Bulk Foods will receive 92% of the offer price per share:
0.92 x $23 = $21.16 per share

To calculate the number of shares needed, divide the total funds required by the net proceeds per share:
$4,280,000 / $21.16 = 202,269 shares

Therefore, Beth's Bulk Foods needs to sell 202,269 shares to meet their cash need.

Beth's Bulk Foods Wants to Raise $4 Million to Open