Calculating Costs of Issuing Stock Paige's Purses, Inc., needs to raise $30 million in new capital funding from a seasoned equity offering. In discussions with its investment bank, Paige learns that the bankers recommend a gross price of $25.00 per share and they will charge an underwriter's spread of $2.00 of the gross price. In addition, Paige must pay $2 million in legal and other administrative expenses for the seasoned stock offering. What is the number of shares of stock that Paige will need to sell to raise the $30 million?

Question

Quizplus · Accepted Answer

To calculate the number of shares of stock that Paige will need to sell to raise the $30 million, we need to first calculate the net price per share after deducting the underwriter's spread from the gross price.

Net price per share = Gross price per share - Underwriter's spread
= $25 - $2
= $23

Next, we can calculate the number of shares of stock that Paige needs to sell by dividing the total amount to be raised by the net price per share.

Number of shares = Total amount to be raised / Net price per share
= $30,000,000 / $23
= 1,391,305

Therefore, the best choice is A) 1,391,305 shares of stock.