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Finance:Share issue.

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1. Norman Internet Service Company is interested in selling common stock to raise capitol for capacity expansion. The firm has consulted First Tulsa Company, a large underwriting firm, which believes that the stock can be sold for $50 per share. The underwriter's investigation found that its administrative costs will be 2.5% of the sale price, and its selling cost will be 2.0 percent of the sale priced. If the underwriter requires a profit equal to 1 percent of the sale price, how much, in dollars, will the spread have to be to cover the underwriters' cost and profit?

2. The Norman company needs to raise $50 million of new equity capitol. Its common stock is currently selling for $50 per share. The investment backers require and underwriting spread of 3 percent of the offering price. The company's legal, accounting, and printing expenses, associated with the seasoned offering, are estimated to be $750,000. How many new shares must the company sell to net $50 million?

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Solution Summary

The problem set deal with the mathematics of share issues.

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Finance: Share issuing.

Complete Study Problem 13-5 from the end of Chapter 13 of the text and submit to your instructor. Clearly label the calculation of the required ratios and solve using Excel. Use formulas to calculate the ratios and format the cells to insert a comma if there is more than three numbers. Round dollar amounts to the nearest whole dollar. Summarize your analysis in a concise management statement not to exceed 100 words.

13-5. (Flotation costs and issue size) D. Butler Inc. needs to raise $14 million. Assuming that the market price of the firm's stock is $95, and flotation costs are 10 percent of the market price, how many shares would have to be issued? What is the dollar size of the issue?

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