Question

34) Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $18.70 per share for 500,000 shares. The company will receive $17.00 per share and will incur $170,000 in registration, accounting, and printing fees.

a-1. What is the spread on this issue in percentage terms? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

SPREAD_________%

a-2. What are the total expenses of the issue as a percentage of total value (at retail)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

EXPENDITURE PERCENTAGE _________%

b. If the firm wanted to net $16.83 million from this issue, how many shares must be sold? (Do not round intermediate calculations. Enter your answer rounded to the nearest whole number.)

SHARES _____________-

Answer 1

(a)(1)-Spread on this issue in percentage terms

Spread per share = Retail price per share – Selling price per share

= $18.70 per share - $17.00 per share

= $1.70 per share

Therefore, the Spread on this issue in percentage terms = [Spread per share / Retail price per share] x 100

= [$1.70 / $18.70] x 100

= 9.09%

(a)(2)-Total expenses of the issue as a percentage of total value (at retail)

Total expenses = [Number of shares issued x Spread per share] + Registration fees

= [500,000 shares x $1.70 per share] + $170,000

= $850,000 + $170,000

= $1,020,000

Total Value at retail = Number of shares issued x Retail price per share

= 500,000 shares x $18.70 per share

= $9,350,000

Therefore, the Total expenses of the issue as a percentage of total value (at retail) = [Total Expenses / Total Value at retail] x 100

= [$1,020,000 / $9,350,000] x 100

= 10.91%

(b)-The number of shares to be sold if the firm wanted to net $16.83 million from this issue,

The number of shares to be sold if the firm wanted to net $16.83 million = [Amount needed + Registration fees] / Selling price per share

= [$16,830,000 + $170,000] / $17.,00 per share

= $17,000,000 / $17.00 per share

= 1,000,000 Shares