Red Shoe Co. has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering. It has correctly determined that as a result of the rights offering, the share price will fall from $80 to $64 ($80 is the rights-on price; $64 is the ex-rights price,also known as the when-issued price). The company is seeking $12 million in additional funds with a per-share subscription price equal to $40. How many shares are there currently, before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds from the offering.)

Multiple Choice

• 432,000

• 450,000

• 468,000

• 472,500

• 271,500

The Raven Co. has just gone public. Under a firm commitment agreement, Raven received 27.00 for each of the 3 million shares sold. The initial offering price was $29.16 per share, and the stock rose to $37.32 per share in the first few minutes of trading. Raven paid $570,000 in direct legal and other costs, and $171,000 in indirect costs. What was the flotation cost as a percentage of funds raised?

Multiple Choice

• 39.50%

• 41.08%

• 37.92%

• 30.71%

• 9.00%