Question

3-15 16 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. Bushwhacker Mowing needs $360 million to support growth. If it issues new common stock to raise the funds, the flotation (issuance) costs will be 4 percent. If Bushwhacker can issue stock at $60 per share, how many shares of common stock must be issued so that it has $360 million after flotation costs? Show how much of the is- sue will consist of flotation costs and how much Bushwhacker will receive after flotation costs are paid. Mom's Motel Corporation (MM) plans to issue bonds to raise $175 million that it needs to sup- port future operations. MM's investment bank- er will charge 2.5 percent of the total amount issued to help MM raise the funds. In addition, MM will incur other costs associated with the issue that equal $500,000. The market value of each bond at issue time will be $1,000. How many bonds must GM sell to net $175 million after flotation costs? Assume that fractions of bonds cannot be issued. United Uninsured Underwriters (U™) needs to raise $192 million. If it issues new common stock to raise the funds, the flotation costs will be 8 percent. The new issue will also require U'to pay $280,000 In fees to its lawyers, the printer, and others asso ciated with the issue. U can issue stock at $25 per share. How many shares of common stock must be issued so that it has $192 million after flotation costs? Show how much of the total dollar amount will be flotation costs and how much U' will re- ceive after the flotation costs are paid. Jasmine Flowers must raise $345 million for its future expansion. To do so, Jasmine expects to issue new common stock. Investment bankers have informed the company that the flotation costs will be 6.5 percent of the total amount is- sued and that the company will incur another $576,000 in costs associated with the issue. Jas- mine can issue its stock for $55 per share. Deter- mine how many shares Jasmine must sell to net $345 million after flotation costs. Wilderness World (WW) needs to raise $84 mil- lion in debt. To issue the debt, ww must pay its underwriter a fee equal to 3 percent of the is- sue. The company estimates that other expenses associated with the issue will total $487,000. If the face value of each bond is $1,000, how many bonds must be issued to net the needed $84 mil- lion? Assume that the firm cannot issue a frac- tion of a bond. 3-17 3-20

Answer 1

Ler he no Of Shares be wbich wl se BE after flotation Cocts Given Amount Taisel fom Common Shock $22S millan Flotalion Cost 10 1ssue Rice o1 Stock per Share $160 tobe

Amount to be raised from Common Stock Ussue Rice x No. of shares hobeissued ) Ussue Pocex No.0Shares to be.issued x Flohaion Cos) 22S000000160x 1 () 16axxo - 160a-16 22 S000 000 2.2 S000 O00 14402 1562S00 No.of Shares to be issued /S625S oo Flotation CoS No.of Shavesx Issue Pice x FlotaHon Cost = 1962500x160x l0 2S000000 AMOunt Receved afer fiohaton Cos Amount tooberaised From Common StOck $22Soo0 000