Question

Howett Pockett, Inc., plans to issue 11.5 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $36.80 per share and they will charge an underwriter’s spread of 8.5 percent of the gross proceeds. In addition, Howett Pockett must pay $4.9 million in legal and other administrative expenses for the seasoned stock offering.

Calculate the gross proceeds per share. (Round your answer to 2 decimal places.)

Gross Proceeds $ ___________Per Share

Calculate the total funds received by Howett Pockett from the sale of the 11.5 million shares of stock.(Enter your answer in millions of dollars rounded to 3 decimal places.)

Funds Received by Howett Pockett $ ____________m

Answer 1

Gross Proceeds per share = $40.22 per share

Gross Proceeds per share

Gross proceeds = Underwriters spread + Net Proceeds

Gross proceeds = [0.085 x Gross proceeds] + $36.80

Gross proceeds – 0.085 Gross Proceeds = $36.80

0.915 Gross Proceeds = $36.80

Gross proceeds = $36.80 / 0.915 = $40.22 per share

Total funds received by Howett Pockett, Inc= $418,300,000

Total funds received by Howett Pockett, Inc

= [ Number of shares x net proceeds per share ] - Legal and other administrative expenses

= [11.50 million shares x $36.80 per share ] - $4.90 million

= $423,200,000 – 4,900,000

= $418,300,000