The Valhalla Corporation needs to raise $40 million to finance its expansion int

Question

The Valhalla Corporation needs to raise $40 million to finance its expansion into new markets. The company will sell new shares of equity via a general cash offering to raise the needed funds. If the offer price is $15 per share and the company’s underwriters charge a spread of 5 percent, how many shares need to be sold? (Do not round intermediate calculations and round your final answer to nearest whole number. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Number of shares offered?

Explanation / Answer

Let X be the required sale proceeds, the equation to calculate the total sale proceeds, including flotation costs is:

X(1-0.05) = 40,000,000.

X = 40,000,000/0.95

X = 42105263 required total sale proceeds of sale.

So the number of shares offered is the total amount raised divided by the offer price, which is:

Number of shares offered = $42105263 / $15 = 2807018 shares.

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