Question 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?
Question 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?