Mountain Teas wants to raise $14.9 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $582,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?

Question

Business

Elian

12 September, 03:52

Mountain Teas wants to raise $14.9 million to open a new production facility. The company estimates the issue costs for legal and accounting fees will be $582,000. The underwriters have set the stock price at $27.50 a share and the underwriting spread at 8.15 percent. How many shares of stock must be sold to meet this cash need?

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Answers (1)

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Martha Gonzalez · Answer 1

612,936 shares

Explanation:

The computation of the number of shares of stock must be sold is shown below:

Before that we have to compute

Required sales proceeds net of spread is

= (Raise amount + estimated cost for legal and accounting fees) : (1 - spread rate)

= ($14.9 million + $582,000) : (1 - 0.0815)

= ($1,5482,000) : (1 - 0.0815)

= $16,855,743.06

So, shares to be sold is

= $16,855,743.06 : $27.50

= 612,936 shares