CFIN
5th Edition
ISBN: 9781305661639
Author: Scott Besley, Eugene Brigham
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 3, Problem 18PROB
Summary Introduction
BM needs $360 million to support growth. To raise the needed funds, the flotation cost is 4% of the total issue value and other expenses are $288,000. The market price of each share is $60. Calculate the number of outstanding shares.
Equity financing is the process of raising equity capital by issuing shares to investors due to short-term need or long-term goal or for the future growth of the firm.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Anderson Anchor Corporation needs to raise $54 million to support its expansionplans. Anderson’s investment banker normally charges 10 percent of themarket value to handle an equity issue. If the price of Anderson’s stock isexpected to be $12, how many shares of stock must be issued so that thecompany receives the needed $54 million?
Global Gum Company (GGC) has decided to issue $150 million in common stock toraise funds to finance future growth. GGC’s stock currently sells for $25 per share.a. How many shares of stock does GGC plan to issue?b. If flotation costs are 8 percent, how much of the $150 million will GGC beable to use to fund growth?
Persian Rugs needs $600 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $125 per share, how many shares of common stock must be issued so that it has $600 million after flotation costs to use for its planned growth.
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Express Courier (EC) needs $141 million to support future growth. If it issues common stock to raise the needed funds, EC will have to pay its investment banker flotation costs of 6% of the issue's total value. If EC can issue common stock at a market price of $80 per share, how many shares must be issued so that the company has the $141 million that it needs? There are no other issuing expenses or fees in the offering. Jewel Regal Cars (JRC) must raise $240 million to support operations. To do so, JRC plans to issue new bonds. Investment bankers have informed JRC that the flotation costs will be 4% of the total amount issued. If the market value of each bond is $1,000, how many bonds must JRC sell to net the $240 million that it needs? There are no other issuing expenses or fees in the offering. Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to support future operations. MM's investment banker will charge flotation costs of 2.5% of the…arrow_forwardThe company needs to raise $40 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $30 per share and the company's underwriters charge 12 percent spread, how many shares need to be sold?arrow_forwardThe Whistling Straits Corporation needs to raise $60 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $21 per share and the company's underwriters charge a spread of 7 percent, how many shares need to be sold? (Do not round intermediate calculations and round your answer to nearest whole number, e.g., 1,234,567.) Number of shares offered 3,133,641arrow_forward
- The Elkmont Corporation needs to raise $63.8 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $22 per share and the company’s underwriters charge a spread of 7.5 percent, how many shares need to be sold?arrow_forwardThe Meadows Corporation needs to raise $70 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $30 per share and the company’s underwriters charge a spread of 8 percent, how many shares need to be sold? (Do not round intermediate calculations and enter your answer in shares, not millions, rounded to the nearest whole number, e.g., 1,234,567.)arrow_forwardThe Elkmont Corporation needs to raise $67.9 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $23 per share and the company's underwriters charge a spread of 7.5 percent. How many shares need to be sold? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. Number of shares offeredarrow_forward
- Bulldogs Inc. has forecasted that its net income will be P520,000. The company has an debt-to-equity ratio of 25%. The dividend policy of the firm follows the residual dividend model. Bulldogs Inc. has a project that needs funding amounting to P600,000. The number of issued and outstanding shares of Bulldogs Inc. is 5,000. How much of the project must be funded by equity? The carrying cost curve and ordering cost curve of Bulldogs Inc.’s inventory intersect at 3,500 units. What is the total annual cost of inventory given that the annual demand is 75,000 units and the carrying cost per unit per year is P12arrow_forwardNEKO Inc. has forecasted that its net income will be P520,000. The company has an debt-to-equity ratio of 25%. The dividend policy of the firm follows the residual dividend model. NEKO Inc. has a project that needs funding amounting to P600,000. The number of issued and outstanding shares of NEKO Inc. is 5,000. How much of the project must be funded by equity?arrow_forwardGravity Company needs to raise $49.5 million to fund its expansion plans. The company will sell shares at a price of $28.30 in a general cash offer and the company's underwriters will charge a spread of 6 percent. How many shares need to be sold?arrow_forward
- Your PE firm is considering acquiring a publicly traded digital advertising company, Star Dust Enterprises (SDE). The following are some key statistics of the stock of SDE today (t = 0). SDE is 100% equity financed. Its cost of capital (apply this to all cash flows) is 11.2% and the payout ratio is 79%. Expected earnings per share of SDE at next year (t = 1) are $6.6. Assume that without new investments, expected earnings of SDE would remain at their time-1 level in perpetuity. All future investments are expected to generate $0.2 in incremental earnings for each $1 of investment. For an investment made at time t, incremental cash flows are generated starting in year t + 1. (a) Compute expected dividend per share of SDE next year (t = 1): $ (b) Compute expected dividend per share of SDE two years from now (t = 2): $ (c) What is the present value of growth opportunities (PVGO) of SDE today? $arrow_forwardNational Inc. has forecasted that its net income will be P520,000. The company has an debt-to-equity ratio of 25%. The dividend policy of the firm follows the residual dividend model. National Inc. has a project that needs funding amounting to P600,000. The number of issued and outstanding shares of National Inc. is 5,000. How much of the project must be funded by equity? a. P450,000 b. P480,000 c. P120,000 d. P150,000arrow_forwardGlobal Internet company is looking to expand their operations. They are evaluating their cost of capital based on various financing options. Investment bankers informed them that they can issue new debt in the form of bonds at a cost of 8%, and issue new preferred stocks for the price of $25 per share paying $2.5 dividends per share. Their common stock is currently selling for $20 per share and will pay a dividend of $1.5 per share next year. They expect a growth rate in dividends of 5% per year, and their marginal tax rate is 35%. If Global raises capital using 45% debt, 5% preferred stock, and 50% common stock what is their cost of capital?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Working capital explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=XvHAlui-Bno;License: Standard Youtube License