General cash offering: Star Corporation, an auto fuel cell maker, is planning a new plant and needs to raise $30 million to finance it. The company plans to raise the money through a general cash offering priced at $23.50 a share. Star's underwriters charge a 6 percent spread. How many shares does the company have to sell to achieve its goal?

Question

Quizplus · Accepted Answer

To calculate the number of shares Star Corporation needs to sell, we first need to determine the total amount of funds the company will receive after deducting underwriters' fees.

The underwriters' spread is 6%, meaning that Star will receive 94% of the offering price per share. Therefore, the amount of funds Star will receive per share is:

$23.50 x 0.94 = $22.09

To raise $30 million, we need to divide $30 million by the amount of funds Star will receive per share:

$30,000,000 ÷ $22.09 = 1,358,081

Therefore, Star Corporation needs to sell 1,358,081 shares to raise $30 million after deducting underwriters' fees.

General Cash Offering: Star Corporation, an Auto Fuel Cell Maker