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Homework answers / question archive / Magenta Corporation wants to raise $51
Magenta Corporation wants to raise $51.3 million in a seasoned equity offering, net of all fees. Magenta stock currently sells for $10 per share. The underwriters will require a spread of $0.5 per share, and indicate that the issue must be underpriced by 5 percent. In addition to the underwriter’s fee, the firm will incur $2,300,000 in legal, accounting, and other costs. How many shares must Magenta sell? (Enter your answer in millions rounded to 3 decimal places.)
Net sale price per share = (10-0.50)*(1-5%)
= $ 9.025
Company must raise = Net Fund Required + legal, accounting, and other costs
= 51.3 M + 2.3 M
= $ 53.6 M
No of shares must Magenta sell = Amount Required / Sale price per share
= 53,600,000/9.025
= 5,939,058.172