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Outdoor Goods needs $3.8 million to modernize its production equipment. The underwriters set the stock price at $29.50 a share with an underwriting spread of 7.35 percent. This would be a firm commitment underwriting. The estimated issue costs are $272,000. How many shares of stock must be sold to finance this project?A) 148,984B) 188,917C) 152,311D) 186,299E) 162,400

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Answer:

A.148,984 shares

Explanation:

Calculation for How many shares of stock must be sold to finance this project

First step is to calculate the Total value of issue

Total value of issue = ($3,800,000 + 272,000) / (1 - .0735)

Total value of issue = $4,072,000/ 0.9265

Total value of issue = $4,395035.08

Now let calculate the Number of shares needed

Number of shares needed = $4,395035.08 / $29.50

Number of shares needed= 148,984 shares

Therefore the number of shares of stock that must be sold to finance this project is 148,984 shares

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