The Elkmont Corporation needs to raise $51.2 million to finance its expansion in

Question

The Elkmont Corporation needs to raise $51.2 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. The offer price is $28 per share and the company’s underwriters charge a spread of 8 percent. The SEC filing fee and associated administrative expenses of the offering are $1,452,000.

What are the required proceeds from the sale necessary for the company to pay the underwriter's spread and administrative costs? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)

How many shares need to be sold? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)

The Elkmont Corporation needs to raise $51.2 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. The offer price is $28 per share and the company’s underwriters charge a spread of 8 percent. The SEC filing fee and associated administrative expenses of the offering are $1,452,000.

What are the required proceeds from the sale necessary for the company to pay the underwriter's spread and administrative costs? (Enter the whole number for your answer, not millions (e.g., 1,234,567). Round your answer to the nearest whole number (e.g., 1,234,567).)

Explanation / Answer

Using X to stand for the required sale proceeds, the equation to calculate the total sale proceeds, including flotation costs is: Funds needs to be raised           51,200,000 SEC filing fee & administrative expense             1,452,000 Offer Price 28 Total expenses           52,652,000 X(1-0.08) = 52652000 X           57,230,435 Required proceeds from the sale           57,230,435 Offer price per share                           28 Shares needs to be sold : Required proceeds from sale/Offer price per share Shares needs to be sold             2,043,944

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