Question

The Elkmont Corporation needs to raise $51.4 million to finance its expansion into new markets. The...

The Elkmont Corporation needs to raise $51.4 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. The offer price is $30 per share and the company’s underwriters charge a spread of 9 percent.

How many shares need to be sold? (Do not round intermediate calculations and enter your answer in shares, not millions of shares, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.)

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Answer #1

Answer : The number of shares to be sold is 1,882,784 shares

Calculation and Explanation

Given the following Information

Funds to be raised = $ 51.4 million or $ 51,400,000.

Offer price = $ 30

Underwriter's spread = 9 % or 0.09

Amount received by company = Offer price (1 - Floatation cost)

= 30 ( 1 - 0.09)

= $ 27.30

Total No. of shares to be sold = Funds Needed / Amount received by company per share

= $ 51,400,000 / $ 27.30

= 1,882,783.88278 shares or 1,882,784 shares

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