Question

Gravity, Inc., needs to raise $50 million to fund its expansion plans. The company will sell shares at a price of $28.40 in a general cash offer and the company's underwriters will charge a spread of 6.5 percent. How many shares need to be sold

Answer 1

1,882,956 shares

Step-by-step explanation:

Amount that company wants to raise = $50,000,000

Price per share in general cash offer = Price per share offered to public

Price per share offered to public = $28.40

Underwriters Spread = 7.5%

Underwriter's commission per share = 6.5% * $28.40 = $1.846

Amount received by company per share = Price per share in general cash offer - Underwriter's commission per share

Amount received by company per share = $28.40 - $1.846

Amount received by company per share = $26.554

Amount that company wants to raise = Number of shares sold * Amount received by company per share

50,000,000 = Number of shares sold * $26.554

Number of shares sold = $50,000,000 / $26.554

Number of shares sold = 1882955.486932289

Number of shares sold = 1,882,956 shares