Problem 18-3 Pricing Stock Issues Benjamin Garcia\'s start-up business is succee
ID: 2728454 • Letter: P
Question
Problem 18-3
Pricing Stock Issues
Benjamin Garcia's start-up business is succeeding, but he needs $194,000 in additional funding to fund continued growth. Benjamin and an angel investor agree the business is worth $776,000 and the angel has agreed to invest the $194,000 that is needed. Benjamin presently owns all 35,000 shares in his business. Because the stock will be sold directly to an investor, there is no spread; the other flotation costs are insignificant.
What is a fair price per share? Round your answer to the nearest cent.
$
How many additional shares must Benjamin sell to the angel? Round your answer to the nearest whole.
shares.
Explanation / Answer
Fair price per share = value of the existing business/ no. of shares outstanding
= 776,000 / 35,000
= 22.17 per share
Now Benjamin wants to raise 194000 from angel. Therefore, no. of shares to be issued would be:
No. of additional shares = Amount to raise / price per share
= 194,000 / 22.17
= 8750.56 shares