A company wants to raise $500 million in a new stock issue. Its investment banker indicates...
A company wants to raise $500 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8 percent underpricing and a 7 percent spread. It’s current stock price is $75. Round answers & intermediate calculations to the ones place. Spread is calculated on the amount after the underpricing.
What will be the price to the public? $
What is the net amount per share received by the company? $
How many shares must the company sell?
How much spread will the investment banker earn on the sale? $
Does the company lose any cash flow during the issuance due to underpricing? Enter yes or no
Homework Answers
Price to public = Current price - underpricing
= 75 - 8%*75 = $69
Net amount received by Company = 69 - 7%*69
= $64.17
Shares required to be sold = Amount required/Amount received per share
= 500,000,000/64.17
= 7,791,803.02 shares
i.e. 7,791,803 shares
Spread earned = 7,791,803*4.83 = $37,634,408.49
Yes
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