Question

The Beranek Company, whose stock price is now $30, needs to raise $13 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $25 per share because of signaling effects. The underwriters' compensation will be 6% of the issue price, so Beranek will net $23.50 per share. The firm will also incur expenses in the amount of $165,000. How many shares must the firm sell to net $13 million after underwriting and flotation expenses

Answer 1

858,085 shares must be sold

Step-by-step explanation:

Net amount to be raised $ 13,000,000

Add: floatation expenses 165,000

Amount to be available after

payment of underwriting compensation 20,165,000

No of shares to be issued at 23.50 $ = 20,165,000/23.50 = shares, rounded off to 858,085 shares.

858,085 shares must be sold