Calculating Costs of Issuing Stock Blue Dragon,Inc.,needs to raise $600 million to finance its plan for nationwide expansion.In discussions with its investment bank,Blue Dragon learns that the bankers recommend an offer price (or gross price)of $60 per share and they will charge an underwriter's spread of $3.00 per share.Calculate the net proceeds to Blue Dragon from the sale of stock.How many shares of stock will Blue Dragon need to sell in order to receive the $600 million they need?
A)10,000,000
B)10,526,316
C)200,000,000
D)600,000,000

Question

Quizplus · Accepted Answer

The underwriter's spread is the fee charged by the investment bank for underwriting services, which is subtracted from the gross proceeds of the stock sale to determine the net proceeds to the company. In this case, the gross price is $60 per share, and the underwriter's spread is $3.00 per share. Therefore, the net price is:

Net Price = Gross Price - Underwriter's Spread
Net Price = $60 - $3.00
Net Price = $57.00

To raise $600 million, Blue Dragon needs to sell:

Number of Shares = Total Proceeds / Net Price
Number of Shares = $600,000,000 / $57.00
Number of Shares = 10,526,316 shares

Therefore, the best choice is B, 10,526,316 shares.