A company wants to raise 500 million in a new stock issue, Financial Management

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A company wants to raise 500 million in a new stock issue

A company wants to raise $500 million in a new stock issue. Its investment banker indicates that the sale of new stock will require 8 percent under pricing and a 7 percent spread. (Hint: the under pricing is 8 percent of the current stock price, and the spread is 7percent of the issue price.)

a. Assuming the company’s stock price does not change from its cur-rent price of $75 per share, how many shares must the company sell and at what price to the public?

b. How much money will the investment banking syndicates earn on the sale?

c. Is the 8 percent under pricing a cash flow? Is it a cost? If so, to whom?

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Financial Management: A company wants to raise 500 million in a new stock issue

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