Question

anyone wanna try helping me with a finance problem?

Answer 1

Nu Tech wants to raise $21 million to purchase equipment by issuing new securities. Management estimates the issue will cost the firm $320,000 for accounting, legal, and other costs. The underwriting spread is 7.5 percent and the issue price is $21 per share. How many shares of stock must be sold if Nu Tech is to receive sufficient funds to purchase all the desired equipment?

Answer 2

these are options:
1,102,048 shares
1,008,010 shares
1,021,121 shares
1,097,555 shares
1,110,333 shares

Answer 3

my teacher totally did a problem like this in class but i didnt write down the example because i thought i would remember it. stupid me.

Answer 4

I don't know what the underwriting spread is. 7.5% of what?

Answer 5

yeah that's the part that's messing me up.
i know for sure it's a million because 21mil/21shares and then we have the 320,000 (other costs to cover)....but i don't know what to do with the 7.5.

Answer 6

i was thinking 320,000 * .075 but thats wrong

Answer 7

because when u add the 1 mil to that u get 1,024,000 and thats not an option

Answer 8

http://www.investopedia.com/terms/u/underwritingspread.asp

Answer 9

1097555

Answer 10

howd u get that?

Answer 11

The stock will be sold for $21. Nu Tech will have to pay the underwriter .075(21) for each share sold which is 1.575. Therefore Nu Tech will only get 21-1.575 or 19.425 for each share sold. They need to raise 21,320,000 so if you divide that by 19.425 you get 1,097,555 rounded to the nearest share.

Answer 12

Ok, sweet! Thanks! :)

Answer 13

yw