Sipe's Paint and Wallpaper, Inc., needs to raise $1.19 million to finance plant expansion. In discussions with its investment bank, Sipe's learns that the bankers recommend a gross price of $42 per share and that 33,000 shares of stock be sold. If the net proceeds on the stock sale leave Sipe's with $1.19 million, what percent of the total raised represents net proceeds to the firm?

Question

Quizplus · Accepted Answer

The total amount of money raised is:
$42/share x 33,000 shares = $1,386,000

If the net proceeds leave the firm with $1.19 million, then the amount of money that goes to the firm is:
$1,386,000 - $1,190,000 = $196,000

To find out what percentage this is of the total amount raised, we divide the amount going to the firm by the total amount raised and multiply by 100:
$196,000/$1,386,000 x 100 = 14.14%

To find out what percentage of the total raised represents net proceeds to the firm, we subtract this percentage from 100%:
100% - 14.14% = 85.86%

Therefore, choice C is the best answer.