Question

1-Bearskin Rugs needs $115 million to build a new distribution center. If it issues common stock to raise the funds, the issuance costs will be 8 percent of the total amount issued. If Bearskin can issue stock at $40 per share, how many shares of common stock must be issued so that it has $115 million afterflotation costs to use to fund the construction of its distribution center?

2-Persian Rugs needs $600 million to support growth next year. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Persian can issue stock at $125 per share, how many shares of common stock must be issued so that it has $600 million after flotation costs to use for its planned growth?

3-Gerald Morris Corporation (GM) plans to issue bonds to raise $95 million. GM's investment banker will charge flotation costs equal to 5 percent of the total amount issued. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $95 million after flotation costs? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GM will receive after flotation costs are paid.

4-Grand Energy Corporation (GE) plans to issue bonds to raise $345 million. GE's investment banker will charge flotation costs equal to 8 percent of the total amount issued. The market value of each bond at issue time will be $1,000. How many bonds must GE sell to net $345 million after flotation costs? Assume that fractions of bonds cannot be issued. Show how much of the total amount issued will consist of flotation costs and how much GE will receive after flotation costs are paid.

5-Boat Emporium (BE) must raise $225 million. To do so, BE expects to issue new common stock. BE's Investment banker will charge issuing costs equal to 10 percent of the total amount issued. If the stock can be issued for $160 per share, how many shares must BE sell to net $225 million after flotation costs. Show how much of the issue will consist of flotation costs and how much BE will receive after the flotation costs are paid.

Answer 1

Amount to be raised =    115000000
Offer price per share   $40
issuance cost =8%or   0.08
So, net proceeds oer share = 40*(1- 0.08)   36.80
  
No. Of shares offered formula = Amount raised / net proceeds per share  
  
115000000/36.80  
3,125,000   shares
  
So, 3,125,000 number of shares required to be issued    
  
(One separate question is answered as per Chegg policy)