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Gravity, Inc., needs to raise $53 million to fund its expansion plans. The company will sell...

Gravity, Inc., needs to raise $53 million to fund its expansion plans. The company will sell shares at a price of $29.00 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-1,975,769

b-1,827,586

c-1,457,212

d-2,195,299

e-1,700,080

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Answer #1

Amount that company wants to raise = 53 million = 53 x1000000 = 53000000

Price per share in general cash offer = Price per share offered to public = 29

Underwriters Spread = 7.5%

Underwriter's commission per share = 7.5% x 29 = 2.175

Amount received by company per share = Price per share in general cash offer - Underwriter's commission per share = 29 - 2.175 = 26.825

Amount that company wants to raise = no of shares sold x Amount received by company per share

53000000 = no of shares sold x 26.825

No of shares sold = 53000000 / 26.825 = 1975768.87

No of shares to be sold = 1975768

Answer is option a- 1975768

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