Iver Mfg.wants to raise $11.6 million to purchase equipment by issuing new securities.Management estimates the issue will cost the firm $284,000 for accounting,legal,and other costs.The underwriting spread is 6.5 percent and the issue price is $24 per share.How many shares of stock must be sold if the firm is to receive sufficient funds to purchase all its desired equipment?

Question

Quizplus · Accepted Answer

Total cost of equipment purchase = $11.6 million
Total cost of issuing new securities = $284,000
Total cost of underwriting spread = 6.5% of ($11.6 million + $284,000) = $796,100

The total amount that the firm needs to raise through the issue of new securities = $11.6 million + $284,000 + $796,100 = $12,680,100

Each share is priced at $24, so the number of shares that need to be sold = $12,680,100 / $24 = 529,590 shares.

Iver MfgWants to Raise $11