Howett Pockett, Inc., plans to issue 10.1 million new shares of its stock. In di
ID: 2786193 • Letter: H
Question
Howett Pockett, Inc., plans to issue 10.1 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.00 per share and they will charge an underwriter’s spread of 6.0 percent of the gross proceeds. In addition, Howett Pockett must pay $3.5 million in legal and other administrative expenses for the seasoned stock offering.
Calculate the gross proceeds per share. (Round your answer to 2 decimal places.)
Calculate the total funds received by Howett Pockett from the sale of the 10.1 million shares of stock.(Enter your answer in millions of dollars rounded to 3 decimal places.)
Howett Pockett, Inc., plans to issue 10.1 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $34.00 per share and they will charge an underwriter’s spread of 6.0 percent of the gross proceeds. In addition, Howett Pockett must pay $3.5 million in legal and other administrative expenses for the seasoned stock offering.
Explanation / Answer
Here,
Total shares on offer = $10.1 million
net proceeds per share =$34.00 Per share
Funds received by the company= total net proceeds =(net proceeds per share)*(total shares on offer)
=$34*10.1=$343.400 million
Now
for gross proceeds we have
total net proceeds=$343.4 million
legal and other administrative costs=$3.5 million
since, net proceeds = gross proceeds- all costs incurred
total net proceeds=343.4=gross proceeds-(0.06)(gross proceeds)-3.5
transposing 3.5 from Right hand side to left hand side, we get
343.4+3.5=(0.94)(gross Proceeds)
gross proceeds=346.9/0.94=369.04 million
gross proceeds per share=total gross proceeds/total shares on offer=369.04/10.1=$36.53
hence,
gross proceeds per share=$36.53
funds received by company=$343.400 million
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