The Wheat Field needs to raise $65 million to expand itsoperations into South Am

Question

The Wheat Field needs to raise $65 million to expand itsoperations into South America. The company will sell new shares ofcommon stock using a general cash offering. The underwriters chargean 8.5 percent spread. How many shares of stock must be sold if theoffer price is $17 a share? Ignore administrative costs.
a. 3,823,529 shares b. 68,477,802 shares c. 31,416,909 shares d. 4,178,721 shares e. 71,038,251 shares
a. 3,823,529 shares b. 68,477,802 shares c. 31,416,909 shares d. 4,178,721 shares e. 71,038,251 shares

Explanation / Answer

Let Total no of shares be 'N' SO Total share proceeds = 17*N Underwriting commission = 8.5% of Share proceeds = 8.5% of17*N = 0.085*17*N
SO Amount realised = 17*N - 0.085*17*N = 0.915*17*N Amount reqd is $65M So putting values, we get 0.915*17*N = $65M =65,000,000 ie N = 4,178,721 shares........Ans (d)

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