Answered

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Sassy, Inc. 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 Sassy can issue stock at $40 per share, how many shares of common stock must be issued so that it has $115 million after flotation costs to use to fund the construction of the distribution center

Sagot :

Answer: 3,125,000 shares.

Explanation:

The number of shares of common stock that must be issued will be calculated as follows:

Let the amount to be raised be represented by x. Therefore,

x - (8% × x) = $115 million

x - (0.08 × x) = $115 million

x - 0.08x = $115 million

0.92x = $115 million

x = $115 million/0.92

x = $125 million

Then the number of shares that'll be issued will be:

= Amount raised / Issue price of stock.

= $125 million / 40

= 3,125,000 shares.

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