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Chapter 5: Q14BP (page 497)

Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be \(16.85 per share for 550,000 shares. The company will receive \)15.40 per share and will incur \(180,000 in registration, accounting, and printing fees.

  1. What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value (at retail)?
  2. If the firm wanted to net \)15.99 million from the issue, how many shares must be sold?

Short Answer

Expert verified
  1. Percentage spread is 8.605%, and total expenses are $977,500.
  2. Number of shares that must be sold is 1,050,000.

Step by step solution

01

Computation of percentage spread

Percentage spread=Retail price-Net to corporationRetail price脳100=$16.85-$15.40$16.85脳100=$1.45$16.85脳100=8.605%

02

Computation of total expenses

Total expenses=Number of shares脳Spread cost+ Additional expenses=550,000脳1.45+$180,000=$797,500+$180,000=$977,500

03

Expenses computation as a percentage of the total value

Total value=Retail price脳Number of shares=$16.85脳550,000=$9,267,500

Percentage value=Total ExpensesTotal value脳100=$977,500$9,267,500脳100=10.547%

04

Computation of number of shares to be sold

Number of shares to be sold=Desired income+Additional costNet to corporation=$15,990,000+$180,000$15.40=$16,170,000$15.40=1,050,000

Hence, the company requires to sell 1,050,000 shares to earn desired net income

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Most popular questions from this chapter

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