Free Trade Partners needs to raise $24.2million to expand its operations into South America.The company will sell new shares of common stock using a general cash offering.The underwriters will charge a spread of 7.6 percent, the administrative costs will be $631,000, and the offer price will be $32 per share.How many shares of stock must be sold if the firm is to raise the funds it desires?

Question

Quizplus · Accepted Answer

Total funds needed = $24.2 million 
Offer price per share = $32 
Total amount to be raised by selling shares = $24.2 million / $32 = 756,250 shares 
Underwriters' spread = 7.6% 
Administrative costs = $631,000 
Total costs = (7.6% of $24.2 million) + $631,000 = $2,249,200

Total amount to be raised including costs = $24.2 million + $2,249,200 = $26,449,200

Offer price per share including costs = $26,449,200 / 756,250 = $35

Number of shares to be sold = $26,449,200 / $35 = 755,404.57 shares

Since shares cannot be sold in decimal points, the company must sell 839,793 shares to meet its financial needs.

Free Trade Partners Needs to Raise $24