Question

Don’s Captain Morgan, Inc. needs to raise $13.90 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $21.80 per share and Don’s will receive $19.25 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.) How many shares of stock will Don’s need to sell in order to receive the $13.90 million it needs? (Round your answer to the nearest whole number.)

Answer 1

Amount needed for plant expansion = $13.90 million = $13.90 x1000000 = $13900000

Offer price per share = Gross proceeds per share = Amount received by underwriters per share = $21.80

Per share amount received by Don's = $19.25

Underwriter's spread per share = Amount received by underwriter's per share - Per share amount received by Don's = 21.80 - 19.25 = $2.55

Therefore underwriter's spread per share on this issue = $2.55

No of shares Don's need to sell = Amount needed for plant expansion / Per share amount needed by Don's = 13900000 / 19.25 = 722077.9221 = 722078 (rounded to nearest whole number)

Hence No of shares Don's need to sell = 722078