Question

Gravity, Inc., needs to raise $53 million to fund its expansion plans. The company will sell shares at a price of $29.00 in a general cash offer and the company's underwriters will charge a spread of 7.5 percent. How many shares need to be sold?a- 1,975,769b- 1,827,586c- 1,457,212d- 2,195,299e- 1,700,080

Answer 1

a. 1,975,769

Step-by-step explanation:

Underwriter's commission per share = 7.5% * $29

Underwriter's commission per share = $2.175

Amount received by company per share = Price per share in general cash offer - Underwriter's commission per share

Amount received by company per share = $29 - $2.175

Amount received by company per share = $26.825

Amount that company wants to raise = Number of shares sold * Amount received by company per share

53,000,000 = Number of shares sold * $26.825

Number of shares sold = 53,000,000 / $26.825

Number of shares sold = 1975768.87

No of shares to be sold = 1,975,768