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?
The problem set deal with the mathematics of share issues.