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Magenta Corporation wants to raise $51.9 million in a seasoned equity offering, net of all fees....

Magenta Corporation wants to raise $51.9 million in a seasoned equity offering, net of all fees. Magenta stock currently sells for $10 per share. The underwriters will require a spread of $0.6 per share, and indicate that the issue must be underpriced by 5 percent. In addition to the underwriter’s fee, the firm will incur $2,900,000 in legal, accounting, and other costs. How many shares must Magenta sell? (Enter your answer in millions rounded to 3 decimal places.)

Magenta Corporation wants to raise $51.9 million in a seasoned equity offering, net of all fees. Magenta stock currently sells for $10 per share. The underwriters will require a spread of $0.6 per share, and indicate that the issue must be underpriced by 5 percent. In addition to the underwriter’s fee, the firm will incur $2,900,000 in legal, accounting, and other costs. How many shares must Magenta sell? (Enter your answer in millions rounded to 3 decimal places

Number of Shares:

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Answer #1

Offer Price = Current Stock Price - Understock of 5%

Offer Price = 10 - 0.5 (5% of $ 10)

Offer Price = $ 9.5

Net Proceeds = Offer Price - Spread of $ 0.6 per Share

Net Proceeds = 9.5 - 0.6

Net Proceeds from one share = $ 8.9

Number of Shares to be issued = (Amount to be raised + Legal, Accounting and Other Cost) / Net Proceeds from One Share

Legal, Accounting and Other Cost = $ 29,00,000

Amount to be raised = $ 51,900,000

Net Proceeds from Issue of One Shares = $ 8.9

Number of Shares to be issued = (51,900,000 + 29,00,000) / 8.9

Number of Shares to be Issued = 6,157,303.37 Shares

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