Question: Lansdowne Ltd. needs to raise $10 million and intends to sell additional shares. The companys existing shares are trading on the Toronto Stock Exchange for

Lansdowne Ltd. needs to raise $10 million and intends to sell additional shares. The company’s existing shares are trading on the Toronto Stock Exchange for $28. However, the investment dealer hired by Lansdowne has cited investors’ concerns about information asymmetry to justify an offering price of $25 per share. Underwriting costs charged by the investment dealer are 5 percent of the issue price. How many shares must the firm sell to net $10 million?
Why does the investment dealer suggest an offering price less than the trading price?

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