Mountain Teas wants to raise $13.6 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $386,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?

Question

Quizplus · Accepted Answer

To meet the cash need of $13.6 million including the issue costs of $386,000, the total amount needed is $13.6 million + $386,000 = $13,986,000. The underwriting spread of 8.15% means that the company will receive only 91.85% (100% - 8.15%) of the set stock price per share. Therefore, the net amount received per share is $27.50 * 91.85% = $25.25875. To find out how many shares need to be sold: $13,986,000 / $25.25875 ≈ 553,709 shares.

Mountain Teas Wants to Raise $13