Foster Enterprises' stock is trading for $40 per share and there are currently 19 million shares outstanding. It would like to raise $95 million. Assume its underwriter charges 8% of gross proceeds. a. How many shares must it sell? b. If it expects the stock price to drop by 1% upon announcement of the SEO, how many shares should it plan to sell? c. If all of the shares are primary shares and are sold to new investors, what percentage reduction in ownership will all of the existing shareholders experience?
Foster Enterprises' stock is trading for $40 per share and there are currently 19 million shares outstanding. It would like to raise $95 million. Assume its underwriter charges 8% of gross proceeds. a. How many shares must it sell? b. If it expects the stock price to drop by 1% upon announcement of the SEO, how many shares should it plan to sell? c. If all of the shares are primary shares and are sold to new investors, what percentage reduction in ownership will all of the existing shareholders experience?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Foster Enterprises' stock is trading for
$40
per share and there are currently
19
million shares outstanding. It would like to raise
$95
million. Assume its underwriter charges
8%
of gross proceeds.a. How many shares must it sell?
b. If it expects the stock price to drop by
1%
upon announcement of the SEO, how many shares should it plan to sell?c. If all of the shares are primary shares and are sold to new investors, what percentage reduction in ownership will all of the existing shareholders experience?
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