Calculating Costs of Issuing Stock WuShock,Inc.,needs to raise $500 million to finance its plan for nationwide expansion.In discussions with its investment bank,WuShock learns that the bankers recommend an offer price (or gross price)of $50 per share and they will charge an underwriter's spread of $2.00 per share.Calculate the net proceeds to WuShock from the sale of stock.How many shares of stock will WuShock need to sell in order to receive the $500 million they need?
A)10,000,000
B)10,416,667
C)250,000,000
D)500,000,000

Question

Quizplus · Accepted Answer

To calculate the net proceeds, we need to subtract the underwriter's spread from the gross price:

Net proceeds per share = Gross price per share - Underwriter's spread 
Net proceeds per share = $50 - $2 
Net proceeds per share = $48

To raise $500 million, we need to divide the total amount needed by the net proceeds per share:

Number of shares needed = Total amount needed / Net proceeds per share 
Number of shares needed = $500,000,000 / $48 
Number of shares needed = 10,416,667

Therefore, WuShock will need to sell approximately 10,416,667 shares of stock to receive the $500 million they need, making the best choice B.