Winston Sporting Goods is considering a public offering of common stock. Its inv

Question

Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $16.85 per share for 550,000 shares. The company will receive $15.40 per share and will incur $180,000 in registration, accounting, and printing fees. a. What is the spread on this issue in percentage terms? What are the total expenses of the issue as a percentage of total value (at retail)? b. If the firm wanted to net $15.99 million from this issue, how many shares must be sold?

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A: Spread %

Spread = Retail Price - Price Received = 16.85 - 15.40 = 1.45

Spread % = Spread/Retail Price*100 = 1.45/16.85*100 = 8.605% or 8.61%

Part B: Total Expenses as a % of Total Value

Total Expenses = Spread Cost + Out of Pocket Costs = 550000*1.45 + 180000 = 977500

Total Value = Number of Shares*Retail Price = 550000*16.85 = 9267500

Total Expenses as a % of Total Value = Total Expenses/Total Value*100 = 977500/9267500*100 = 10.547% or 10.55%

Part C: Number of Shares Needed to be Sold

Number of Shares to be Sold = (Desired Net Income + Issue Costs)/Net Price = (15990000 + 180000)/15.40 = 1050000

Thanks.

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