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 $18 per share for 600,000 shares. The company will receive $16.50 per share and will incur $150,000 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 $18 million from this issue, how many shares must be sold? PLEASE EXPLAIN!!

Explanation / Answer

a. $18 – $16.50 = $1.50 spread $1.50/$18.00 = 8.33% spread Total value = 600,000 shares x $18 = $10,800,000 Out-of-picket/total value $150,000/$10,800,000 = 1.39% 8.33% Spread 1.39% Out-of-pocket 9.72% Total % b. Amount needed = $18,000,000 Total shares to be sold to net $18,000,000 = ($18,000,000 + issue costs)/net price per share = $18,150,000/$16.50 per share = 1,100,000 shares

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