Question

Business is booming for Cargill Company, so the firm has decided to expand its operations internationally. The company will sell new shares of common stock using a general cash offering in order to raise the $16.8 million it needs to fund its overseas expansion. Cargill's investment bankers agreed to a spread of 7.85 percent, the administrative costs will be $515,000, and the offer price will be $21 per share. How many shares of stock must be sold for Cargill to receive the expansion funds it needs

Answer 1

894,763 stocks

Step-by-step explanation:

total flotation costs = 7.85% of total stocks issued + $515,000

the corporation will receive $21 x (1 - 7.85%) = $19.3515 per stock issued

$16,800,000 = $19.3515X - $515,000

$17,315,000 = $19.3515X

X = $17,315,000 / $19.3515 = 894,762.68 ≈ 894,763 stocks