Problem 18-2 Underwriting and Flotation Expenses The Beranek Company, whose stoc
ID: 2728453 • Letter: P
Question
Problem 18-2
Underwriting and Flotation Expenses
The Beranek Company, whose stock price is now $40, needs to raise $23 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $38 per share because of signaling effects. The underwriters' compensation will be 6% of the issue price, so Beranek will net $35.72 per share. The firm will also incur expenses in the amount of $160,000.
How many shares must the firm sell to net $23 million after underwriting and flotation expenses? Round your answer to the nearest whole number.
shares
Explanation / Answer
Net price per share after underwriter's compensation = $35.72
Amount needs to be raised = $23,000,000 + $160,000 = $23,160,000
Number of shares required to be sold = $23,160,000 / $35.72 = 648,376