There are one million shares currently outstanding. The company announces plans to raise $3 million
QUESTION
Flotation Costs. Young Corporation stock currently sells for $30 per share. There are one million shares currently outstanding. The company announces plans to raise $3 million by offering shares to the public at a price of $30 per share.a. I f the underwriting spread is 8 percent, how many shares will the company need to issue in order to be left with net proceeds ofS3 million”!b. If other administrative costs are $60,000, what is the dollar value of the total direct costs of the issue?c. If the share price falls by 3 percent at the announcement of the plans to proceed with a seasoned offering, what is the dollar cost of the announcement effect?
a. P=$30 when company wants to raise $3m by issuing shares at $30, and underwriting spreak =8% then x-8%ofx=$3m on solving x=3.26086 hence they should issue (3191489.362/30) = 0.108683 shares b. if other administrative
sts are $60,000 then total costs become (3191489.362-3000000)+60,000 = $251,489.3617 hence total value of the direct costs of issue = $251,489.3617
ANSWER:
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