Pizza Shack Ltd. operates a chain of pizza restaurants in the Maritimes. The business started operations five years ago and has enjoyed rapid growth. The directors of the business believe, however, that future growth can only be achieved if the company seeks a listing on the Toronto Stock Exchange. If the directors go ahead with a listing, the financial advisers to the business have suggested that an issue of common shares by tender at a minimum price of $2.20 would be an appropriate method. The advisers have suggested that 3 million shares should be issued, although the directors of the business are keen to raise the maximum amount of funds possible.
Initial research carried out by the financial advisers suggests that the following demand for shares at different market prices is likely:
Share Price Number of Shares Tendered at
Each Share Price
($) (000s)
3.60 ..................................... 850
3.20 ..................................... 1,190
2.80 ..................................... 1,380
2.40 ..................................... 1,490
2.00 ..................................... 1,540
1.60 ..................................... 1560
8,010

Required:
(a)Discuss the advantages and disadvantages of making a tender issue of shares.
(b) Calculate the expected proceeds from the tender issue, assuming the business:
(i) Issues 3 million shares
(ii) Wishes to raise the maximum amount of funds possible.