Persian Rugs needs $600 million to support growth next year. If it issues new common

stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue

stock at $125 per share, how many shares of common stock must be issued so that it has

$600 million after flotation costs to use for its planned growth?

Question

Andreas Pennington

Business

13 July, 01:37

Persian Rugs needs $600 million to support growth next year. If it issues new common

stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue

stock at $125 per share, how many shares of common stock must be issued so that it has

$600 million after flotation costs to use for its planned growth?

+3

Answers (1)

Know the Answer?

Dana Schultz · Answer 1

4, 992,000 shares

Explanation:

Amount that need to be raised: $600

flotation cost 4 percent:

Actual flotation cost: = 4/100 x $600

=0.04 x $600

=$24 million

Total amount that must be arise = $600 + $24

=$624

Value per share $125

Number of shares need to raise $624million = $624,000,000/$125

=4, 992,000 shares