The Pegasus Company is considering a share issue to finance a new production facility.A feasibility study shows that a total of $25 million in new equity is needed to acquire new equipment.The direct costs of issue are estimated at 5% of the amount raised.How large does the issue need to be?

Question

Quizplus · Accepted Answer

The direct costs of issue are estimated at 5% of the amount raised, so the issue needs to be 105% of the amount needed to acquire new equipment. Therefore, the issue needs to be $25 million / 0.95 = $26.32 million.

The Pegasus Company Is Considering a Share Issue to Finance