Young Corporation stock currently sells for $40 per share. There are 1 million shares currently outstanding. The company announces plans to raise $5 million by offering shares to the public at a price of $40 per share.
A. If the underwriting spread is 6%, how many shares will the company need to issue in order to be left with net proceeds (before other administrative costs) of $5 million ?
B. If other administrative costs are $55,000, what is the dollar value of the total direct costs of the issue?
C. If the share price falls by 5% at the announcement of the plans to proceed with a seasoned offering, what is the dollar cost of the announcement effect?