Don’s Captain Morgan, Inc., needs to raise $12.60 million to finance plant expan

Question

Don’s Captain Morgan, Inc., needs to raise $12.60 million to finance plant expansion. In discussions with its investment bank, Don’s learns that the bankers recommend an offer price (or gross proceeds) of $20.50 per share and Don’s will receive $18.25 per share. Calculate the underwriter’s spread per share on the issue. (Round your answer to 2 decimal places.) Underwriter’s spread $ per share How many shares of stock will Don’s need to sell in order to receive the $12.60 million it needs? Number of shares sold shares

Explanation / Answer

Underwriter’s spread per share:

= $20.50-$18.25

= $2.25

Number of shares issued = Net proceeds received/net proceeds per share

= $12,600,000/$18.25

= 690,410.96 shares or 690,411 shares

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