A company needs to raise 20 million in common stock The new

A company needs to raise $20 million in common stock. The new issue will be offered at $30 per share. The company\'s investment banker will receive $2.50 for each share sold and incur expenses of $2.5 million.   The company will incur expenses of $1 million. How many shares must be sold for the company to net $20 million after flotation and expenses. Round to the nearest whole number.

666,667

Solution

Answer is 854545 Explanation: Net proceed per share affter brokerage to Investment banker 27.5 ( $ 30- 2.50 ) Total amount required from the proceeds of shares Net proceeds in hand required after meeting all expense 20,000,000 Add: Expense to be reimbursed to investment banker 2,500,000 Add: Expense to be incurred by company itself 1,000,000 Total proceeds required from issue of shares 23,500,000 Divide: Net proceeds per share 27.5 Number of shares to be issued 854545.45