Question

The Whistling Straits Corporation needs to raise $91 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $65 per share and the company’s underwriters charge a spread of 7 percent, how many shares need to be sold?

Answer 1

The Whistling Straits Corporation needs 1,498,000 shares to raise $91 million.

Step-by-step explanation:

To calculate the number of shares that need to be sold, we need to divide the amount of money needed by the offer price of each share, accounting for the underwriters' spread. The underwriters' spread is the difference between the offer price and the price at which the underwriters purchase the shares from the company.

In this case, the underwriters' spread is 7 percent of the offer price, which is $65 per share. So the underwriters will purchase the shares from the company at a price of $65 - (7/100 * $65).

Therefore, the number of shares that need to be sold is -

$91,000,000 / ($65 - (7/100 * $65))

= ( $91,000,000 / $65 ) x 107%

= 1,400,000 x 107%

= 1,498,000 shares

The Whistling Straits Corporation needs 1,498,000 shares to raise $91 million.