The stock price of Wards Company is currently $35. Wards need to raise $25 million by issuing common stock. Underwriters have informed Wards’ management that it must price the new issue to the public at $40 per share to ensure that all shares will be sold. The underwriters’ compensation will be 8 percent of the issue price, so Wards will net $36.80 per share. The company will also incur expenses in the amount of $392,000. How many shares must Wards sell to net $25 million after underwriting and flotation expenses
The stock price of Wards Company is currently $35. Wards need to raise $25 million by issuing common stock. Underwriters have informed Wards’ management that it must price the new issue to the public at $40 per share to ensure that all shares will be sold. The underwriters’ compensation will be 8 percent of the issue price, so Wards will net $36.80 per share. The company will also incur expenses in the amount of $392,000. How many shares must Wards sell to net $25 million after underwriting and flotation expenses
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation
Section: Chapter Questions
Problem 2P
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The stock price of Wards Company is currently $35. Wards need to raise $25 million by issuing common stock. Underwriters have informed Wards’ management that it must price the new issue to the public at $40 per share to ensure that all shares will be sold. The underwriters’ compensation will be 8 percent of the issue price, so Wards will net $36.80 per share. The company will also incur expenses in the amount of $392,000. How many shares must Wards sell to net $25 million after underwriting and flotation expenses? Provide the quantitative reasoning/calculations you used to solve this question.
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