Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project?

Question

Quizplus · Accepted Answer

The correct answer is A.The underwriting spread is the percentage of the offering price that the underwriters receive as compensation for their services. In this case, the underwriting spread is 7.35 percent, which means that the underwriters will receive $29.50 x 7.35% = $2.16 per share.The net proceeds from the sale of the stock will be $3.8 million - $272,000 = $3.528 million.The number of shares that must be sold to finance this project is $3.528 million / $29.50 = 148,984 shares.

Outdoor Goods Needs $3