Question

Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $19.00 per share for 590,000 shares. The company will receive $17.40 per share and will incur $160,000 in registration, accounting, and printing fees.

a-1. What is the spread on this issue in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

a-2. What are the total expenses of the issue as a percentage of total value (at retail)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. If the firm wanted to net $14.63 million from this issue, how many shares must be sold?

Answer 1

Answer :

a- 1)

Spread = Retail price - Price received

= 19.00 - 17.40 = 1.60

Spread % = Spread / Retail price * 100

= 1.60 / 19.00 * 100

Spread % = 8.42%

a- 2)

Total expenses = Spread cost + Out pocket costs

= 590,000 * 1.60 + 160,000

= 1,104,000

Total value = Number of shares * Retail price

= 590,000 * 19.00 = 11,210,000

Total expenses as a % of Total value = Total expenses / Total value * 100

= 1,104,000 / 11,210,000 * 100

Total expenses as a % of Total value = 9.88%

b)

Number of shares to be sold = ( Desired Net income + Issue costs ) / Net price

= ( 14,630,000 + 160,000 ) / 17.40

= 850,000