Question

Winston Sporting Goods is considering a public offering of common stock. Its investment banker has informed the company that the retail price will be $17.80 per share for 660,000 shares. The company will receive $16.40 per share and will incur $220,000 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.)
  

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.)
  

b. If the firm wanted to net $14.54 million from this issue, how many shares must be sold? (Do not round intermediate calculations. Enter your answer rounded to the nearest whole number.)
  

Answer 1

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

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

= $17.80 per share - $16.40 per share

= $1.40 per share

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

= [$1.40 / $17.80] x 100

= 7.87%

(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

= [660,000 shares x $1.40 per share] + $220,000

= $924,000 + $220,000

= $11,44,000

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

= 660,000 shares x $17.80 per share

= $11,748,000

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

= [$1,144,000 / $11,748,000] x 100

= $9.74%

(b)-The number of shares to be sold if the firm wanted to net $14.54 million from this issue,

The number of shares to be sold if the firm wanted to net $14.54 million = [Amount needed + Registration fees] / Selling price per share

= [$14,540,000 + $220,000] / $16.40 per share

= $14,760,000 / $16.40 per shares

= 900,000 Shares