Outdoor Living needs $7.5 million to finance modifications to its production equipment because the design of its all-season tents has changed dramatically. The underwriters estimate that the firm could sell additional shares of stock at $14.50 a share with a 7.5 percent underwriting spread. This would be a firm commitment underwriting. The estimated issue costs are $121,000. How many shares of stock will Outdoor Living need to sell to finance this project?

Question

Quizplus · Accepted Answer

Total value of issue = ($7,500,000 + $121,000)/(1 - 0.075) = $8,238,918.92Number of shares needed = $8,238,918.92/$14.50 = 568,201 shares

Outdoor Living Needs $7