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Gravity, Inc., needs to raise $51 million to fund its expansion plans. The company will sell...

Gravity, Inc., needs to raise $51 million to fund its expansion plans. The company will sell shares at a price of $28.60 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. How many shares need to be sold?

A. 1,783,217 shares

B.1,421,834 shares

C.1,658,806 shares

D. 1,927,802 shares

E. 2,142,002 shares

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Answer #1

Answer: The correct answer is 1927802 shares

Given that,
The company needs to raise $51 million or $51*1000000=$51000000
Share price=$28.60
Spread charged by underwriters=7.5%
Now, proceeds from the sale of the new shares required to pay the underwriter's spread is calculated as:
Amount to be raised*100%/(100%-7.5%)
=$51000000*100%/(92.5%)
=$55135135.14
So, the total number of shares that is needed to be issued=$55135135.14/Share price
=$55135135.14/$28.60=1927801.928 or 1927802 shares

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