Foster Enterprises stock is trading for $50 per share and there are currently 10 million shares outstanding.
Question:
Foster Enterprises’ stock is trading for $50 per share and there are currently 10 million shares outstanding. It would like to raise $100 million. If its underwriter charges 5% of gross proceeds,
a. How many shares must it sell?
b. If it expects the stock price to drop by 2% upon announcement of the SEO, how many shares should it plan to sell?
c. If all of the shares are primary shares and are sold to new investors, what percentage reduction in ownership will all of the existing shareholders experience?
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Plan In order to compute the number of shares needed we can set the total money raised equal to the ...View the full answer
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