Jenny Corp. needs to raise $50 million to fund a new project. The company will sell shares at a price of $28.40 in a general cash offer and the company's underwriters will charge a spread of 6.5 percent. The direct flotation costs associated with the issue are $775,000. How many shares need to be sold

Question

Nina Hale

Business

29 January, 13:51

Jenny Corp. needs to raise $50 million to fund a new project. The company will sell shares at a price of $28.40 in a general cash offer and the company's underwriters will charge a spread of 6.5 percent. The direct flotation costs associated with the issue are $775,000. How many shares need to be sold

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Klein · Answer 1

Around 1762337 shares

Explanation:

The amount needed to be raised = $50,000,000

Price per share = $28.40

Number of shares needed here = $50,000,000/28.40 = 1760563 shares

Cost to be covered with the issue = 6.5% of direct flotation costs

=6.5/100 * $775,000 = $50375

Extra shares needed to covered this cost

$50375/$28.40 = 1774 shares

Total shares to be sold = 1760563+1774 = 1762337 shares