Stanley's Flags wants to raise $5 million to open a new distribution center. The company estimates the issue costs including the legal and accounting fees will be $210,000. The underwriters have set
The stock price at $18 a share and the underwriting spread at 7.5 percent. How many shares of
Stock does Stanley's have to sell to meet its cash need?

Question

Quizplus · Accepted Answer

To calculate the number of shares needed, first calculate the net proceeds per share: $18 - (7.5% of $18) = $16.65. Then, calculate the total amount needed including issue costs: $5,000,000 + $210,000 = $5,210,000. Finally, divide the total amount needed by the net proceeds per share: $5,210,000 / $16.65 ≈ 312,913 shares.

Stanley's Flags Wants to Raise $5 Million to Open a New