Howett Pockett, Inc., plans to issue 10.8 million new shares of its stock. In di

Question

Howett Pockett, Inc., plans to issue 10.8 million new shares of its stock. In discussions with its investment bank, Howett Pocket learns that the bankers recommend a net proceed of $35.40 per share and they will charge an underwriter’s spread of 5.0 percent of the gross proceeds. In addition, Howett Pockett must pay $4.2 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.) Gross proceeds $ per share Calculate the total funds received by Howett Pockett from the sale of the 10.8 million shares of stock.(Enter your answer in millions of dollars rounded to 3 decimal places.) Funds received by Howett Pockett $ m

Explanation / Answer

Soln : No. of shares to be sold = 10.8 million, Net proceed per share = $35.40

For gross calculation as underwriter spread = 5% on gross proceeds and $4.2 million as expenses.

So, Gross proceed of issuing new shares (in millins) = 35.40^10.8 *1.05 +4.2 = 401.436 + 4.2 = $405.64 million

Gross proceed per share = Gross proceed /no. of shares = 405.64/10.8 = $ 37.56 per share

Total funds received by Howett Pockett = 10.8*35.40 = $382.320 million

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