Yukon Gold Inc.stock trades at $37 per share and there are 18 million shares outstanding.The management would like to raise $40 million in an SEO.If the underwriter charges 5% of gross proceeds,and all the shares are primary shares sold to new investors,what percentage of the company will be owned by the new investors?

Question

Quizplus · Accepted Answer

To raise $40 million with a 5% underwriting fee, the total amount raised before the fee is considered must be $40 million / (1 - 0.05) = $40 million / 0.95 = approximately $42.11 million. The number of new shares to be issued at $37 per share is $42.11 million / $37 = approximately 1.138 million shares. The percentage of the company owned by new investors is the number of new shares divided by the total shares after the SEO (18 million existing + 1.138 million new) = 1.138 million / 19.138 million ≈ 6%.