After a banner year of rising profits and positive stock returns, the managers of Raptor Pharmaceuticals Corporation (RPC) decided to launch a seasoned equity offering to raise new equity capital. RPC currently has 10 million shares outstanding, and yesterday’s closing market price was $75.00 per RPC share. The company plans to sell 1 million newly issued shares in its seasoned offering. The investment banking firm Robbum and Blindum (R&B) has agreed to underwrite the new stock issue for a 2.5% discount from the offering price, which RPC and R&B have agreed should be $0.75 per share lower than RPC’s closing price the day before the offering is sold.
a. What is likely to happen to RPC’s stock price when the plan for this seasoned offering is publicly announced?
b. Assume that RPC’s stock price closes at $72.75 per share the day before the seasoned offering is launched. What net proceeds will RPC receive from this offering?
c. Calculate the return earned by RPC’s existing stockholders on their shares from the time preceding the announcement of the seasoned offering through the time it was actually sold for $72.75 per share.
d. Calculate the total cost of the seasoned equity offering to RPC’s existing stockholders as a percentage of the offering proceeds.