Number of shares issued; Lease or Buy decision
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1. A Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. The underwriter's compensation will be 5% of the issue price, so the company will net $20.90 per share. The firm will also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million after underwriting and flotation expenses?
2. Assume that a company's tax rate is 40% and the equipments depreciation would be $100 per year. If the company leased the asset on a 2 year lease, the payment would be $110 at the beginning of each year. If the company borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after two years and will be discarded. Should the company lease or buy equipment?
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Answers to 2 questions: number of shares issued to raise capital and Lease or Buy decision.
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1. A Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of signaling effects. The underwriter's compensation will be 5% of the issue price, so the company will net $20.90 per share. The firm will also incur expenses in the amount of $150,000. How many shares must the firm sell to net $20 million after underwriting and flotation expenses?
Answer: $964,115
Price per share= $22.00
Underwriter's ...
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